Drift term and vertex point in single factor interest rate model

Abstract

By using a stochastic differential equation in the form of the Ornstein-Uhlenbeck process, the drift term that is obtained plays a crucial role in determining the vertex point of monetary policy. The drift term, essentially is the same in its structural form for both single factor interest rate models of Vasicek and Cox Ingersoll Ross. Both single factor interest rate models are useful when it comes to measuring the vertex point and vertex point gap of monetary policy transmission.