An options-based impact study of the negative interest rate policy and forward guidance

Massimo Rostagno, Carlo Altavilla, Giacomo Carboni, Wolfgang Lemke, Roberto Motto and Arthur Saint-Guilhem

Journal of Monetary Economics, 2025, vol. 152, issue C

Abstract: The effect of Negative Interest Rate Policy (NIRP) and rate Forward Guidance (FG) on the yield curve is very similar with both policies exerting their maximal impact on a same spectrum of short-to-medium term maturities. Yet, we find that their impact on the predictive interest rate distribution differs. Accommodative FG prices out high interest rate trajectories, thus affecting upper percentiles; NIRP changes the market pricing of the effective lower bound on the policy rate, thus affecting lower percentiles. Building on this evidence, we combine option-implied rate densities with event-study analysis to separate the effects of NIRP and FG. We find that the impact of the ECB's NIRP on forward rates was stronger than that of FG.

Keywords: Monetary policy; Negative interest rates; Forward guidance; Yield curve; Interest rate options (search for similar items in EconPapers)
JEL-codes: C32 C54 C58 E50 E51 E52 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:152:y:2025:i:c:s0304393225000479

DOI: 10.1016/j.jmoneco.2025.103776

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