IMF Working Papers

The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period

By Jun Nagayasu

October 1, 2003

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Jun Nagayasu. The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period, (USA: International Monetary Fund, 2003) accessed October 4, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper empirically evaluates the validity of the term structure of interest rates in a low-interest-rate environment. Applying a time-series method to high-frequency Japanese data, the term-structure model is found to be useful for economic analysis only when interest rates are high. When interest rates are low, the usefulness of the model declines, since the interest spread contains little information that can be used for predicting future economic activity. The term-structure relationship is also weakened by the Bank of Japan's use of interest rate smoothing.

Subject: Econometric analysis, Estimation techniques, Financial services, Long term interest rates, Short term interest rates, Yield curve, Zero lower bound

Keywords: BoJ's interest rate-smoothing behavior, Estimation techniques, Expectations channel, Global, Interest rate channel, Long term interest rates, Monetary policy, Quantitative-easing policy, Reaction function, Short term interest rates, Short-term interest rates, WP, Yield curve, Zero interest rates, Zero lower bound

Publication Details

  • Pages:

    31

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2003/208

  • Stock No:

    WPIEA2082003

  • ISBN:

    9781451874723

  • ISSN:

    1018-5941