The Monetary Policy Decision-Making Process and the Term Structure of Interest Rates

Hans Dillén ()
Additional contact information
Hans Dillén: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 222, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: This paper presents a theoretical model of the term structure of interest rates based on the monetary policy decision-making process at modern central banks. Evaluations of explicit expressions for the spot and forward rate curve render several important results: (i) Spot and forward rates are explicit functions of the number of policy meetings during the time to maturity rather than the time to maturity itself. Consequently, the forward rate curve is step-shaped. (ii) In addition, there are calendar time effects, i.e. the position within the policy cycle is also of importance, especially for short term interest rates. (iii) The forward rate curve exhibits hump-shaped responses to economic shocks and a modified version of the Nelson-Siegel model can be obtained as a special case.

Keywords: The term structure of interest rates; interest rate stepping; policy gap; calendar time effects; hump-shaped responses (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2008-04-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.riksbank.se/upload/Dokument_riksbank/Ka ... ers/2008/wp222ny.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0222

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().