BIS paper outlines lower-bound risk model
Model estimates probability of hitting ELB, helping to guide policy
A working paper published by the Bank for International Settlements sets out a model designed to gauge the risk of interest rates hitting the effective lower bound (ELB).
In The likelihood of effective lower bound events, author Michal Franta combines stochastic simulations around equilibrium values and distribution forecasting based on current data.
“The results are therefore relevant to both the short term, where the ELB likelihood is driven mainly by the current phase of the business cycle
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