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

_IMF Working Papers, October 1, 2003_

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## Bibliographic details
- Authors: Jun Nagayasu
- Published: October 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451874723.001

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### Summary and main findings
- The 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 because the interest spread contains little information that can be used for predicting future economic activity.
- The term-structure relationship is weakened by the Bank of Japan's use of interest rate smoothing.

### Methodology
- Empirical approach: time-series method applied to high-frequency Japanese data.
- Focus: informational content of the interest spread for predicting future economic activity across different interest-rate regimes (high vs. low).

### Policy implications and interpretation
- The predictive power of the yield curve (term structure) for macroeconomic activity is regime-dependent: reliable when interest rates are high; limited when interest rates are low or at/near the zero lower bound.
- Central bank behavior—specifically, the Bank of Japan's interest rate-smoothing behavior—can weaken the term-structure relationship, reducing the interest spread's usefulness as an indicator.
- Implicit consideration: alternative indicators or policy tools may be needed when conventional term-structure signals are uninformative in a zero-interest-rate environment.

### Subjects and keywords
- Subjects: 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

*IMF Working Paper by Jun Nagayasu (October 1, 2003), Working Paper No. 2003/208. — Source: IMF web landing page for the publication.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-term-structure-of-interest-rates-and-monetary-policy-during-a-zero-interest-rate-period-16897_