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Lower bound beliefs and long-term interest rates

Christian Grisse (), Signe Krogstrup and Silvio Schumacher

No 2017-05, Working Papers from Swiss National Bank

Abstract: We study the transmission of changes in the believed location of the lower bound to longterm interest rates since the introduction of negative interest rate policies. The expectations hypothesis of the term structure combined with a lower bound on policy rates suggests that the transmission of policy rate changes to long-term interest rates is reduced when policy rates approach this lower bound. We show that if market participants revise downward the believed location of the lower bound, this may reduce long-term yields and increase transmission. A cross-country event study suggests that such effects have been empirically relevant during the recent negative interest rate episode.

Keywords: Monetary policy; negative interest rates; lower bound; yield curve; term structure (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2017
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Journal Article: Lower-Bound Beliefs and Long-Term Interest Rates (2017) Downloads
Working Paper: Lower Bound Beliefs and Long-Term Interest Rates (2017) Downloads
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