The negative interest rate policy and the yield curve

Fan Dora Xia and Jing Cynthia Wu

No 703, BIS Working Papers from Bank for International Settlements

Abstract: We extract the market's expectations about the ECB's negative interest rate policy from the euro area's yield curve and study its impact on the yield curve. To capture the rich dynamics taking place at the short end of the yield curve, we introduce two policy indicators that summarise the immediate and longer-horizon future monetary policy stances. The ECB has cut interest rates four times under zero. We find that the June 2014 and December 2015 cuts were expected one month ahead but that the September 2014 cut was unanticipated. Most interestingly, the March 2016 cut was expected four months ahead of the actual cut.

Keywords: negative interest rate policy; effective lower bound; term structure of interest rates; shadow rate term structure model; regime-switching model (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2018-02
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Negative interest rate policy and the yield curve (2020)
Working Paper: Negative Interest Rate Policy and the Yield Curve (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:703

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