The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period
October 1, 2003
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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
Pages:
31
Volume:
2003
DOI:
Issue:
208
Series:
Working Paper No. 2003/208
Stock No:
WPIEA2082003
ISBN:
9781451874723
ISSN:
1018-5941
