The response of long-term yields to negative interest rates: evidence from Switzerland

Christian Grisse and Silvio Schumacher

No 2017-10, Working Papers from Swiss National Bank

Abstract: This paper studies the transmission of changes in short-term interest rates to longer-term government bond yields when interest rates are at very low levels or negative. We focus on Switzerland, where short-term interest rates have been at zero since late 2008 and negative since the beginning of 2015. The expectations hypothesis of the term structure implies that as nominal interest rates approach their lower bound, the effect of short-term rates on longer-term yields should decline, and positive short rate changes should have larger absolute effects than negative short rate changes. Contrary to studies of other countries, we find no evidence for a decline in the effect of short rate changes for the low-interest rate period using Swiss data. However, we do find evidence for the predicted asymmetric effect for positive and negative short rate changes during the period when short-term rates are close to zero. This asymmetry normalized again after the introduction of negative interest rates.

Keywords: Monetary policy; negative interest rates; zero lower bound; yield curve (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2017
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2017-10

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