The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period PDF Download
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Author: Mr.Jun Nagayasu
Publisher: International Monetary Fund
ISBN: 1451874723
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
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.
Author: Mr.Jun Nagayasu
Publisher: International Monetary Fund
ISBN: 1451874723
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
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.
Author: Josephine M. Smith
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 56
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Book Description
We first document a large secular shift in the estimated response of the entire term structure of interest rates to inflation and output in the United States. The shift occurred in the early 1980s. We then derive an equation that links these responses to the coefficients of the central bank's monetary policy rule for the short-term interest rate. The equation reveals two countervailing forces that help explain and understand the nature of the link and how its sign is determined. Using this equation, we show that a shift in the policy rule in the early 1980s provides an explanation for the observed shift in the term structure. We also explore a shift in the policy rule in the 2002-2005 period and its possible effect on long-term rates.
Author: Ralf Fendel
Publisher: Peter Lang Publishing
ISBN:
Category : Business & Economics
Languages : en
Pages : 216
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Book Description
Interest rate rules play an important role in the empirical analysis of monetary policy as well as in modern monetary theory. Besides giving a comprehensive insight into this line of research the study incorporates the term structure of interest rates into interest rate rules. This is performed analytically as well as empirically. In doing so, state of the art techniques of modern finance for the analysis of the term structure of interest rates are introduced into the macroeconomic concept of interest rate rules. The study implies that from the theoretical perspective term structure effects are an important extension of interest rate rules. From an empirical perspective it shows that including term structure effects in interest rate reaction functions improves our understanding of the interest rate setting of the Deutsche Bundesbank and the European Central Bank.
Author: Fan Dora Xia
Publisher:
ISBN: 9781321085112
Category : Interest rates
Languages : en
Pages : 105
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Book Description
This dissertation studies the relationship between the term structure of interest rates, monetary policy, and macroeconomy. The first chapter, A Parsimonious No-Arbitrage Term Structure Model that is Useful for Forecasting, offers a solution to a well-known puzzle in the term structure literature. The puzzle is that while the level, slope and curvature (or the first three principal components of yields) can quite accurately summarize the cross-section of yields at any point in time, different functions of interest rates and other macroeconomic variables appear to be helpful when the goal is to predict future interest rates. My paper proposes a parsimonious representation to capture this feature in a large dataset. In the first step, I run reduced rank regressions of one-year excess returns on a panel of 131 macroeconomic variables and initial forward rates from 1964 to 2007. I find that a single linear combination of macroeconomic variables and forward rates can predict excess returns on two- to five-year maturity bonds with R-squared up to 0.71. The forecasting factor subsumes the tent-shaped linear combination of forward rates constructed by Cochrane and Piazzesi (2003) and explains excess returns better. In the second step, I estimate a restricted Gaussian Affine Term Structure Model (GATSM) with the level, slope and curvature commonly used by most term structure models along with the forecasting factor. Restrictions are derived based on the fact that while cross-sectional information in yields is spanned by the level, slope and curvature, cross-sectional information in expected excess returns is spanned by the forecasting factor. Compared with a conventional GATSM only including the level, slope and curvature, the restricted four-factor GATSM generates plausible countercyclical term premia. The second and third chapter focus on the recent zero lower bound (ZLB) period. In the second chapter, Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound, coauthored with Cynthia Wu, we employ an approximation that makes a nonlinear shadow rate term structure model (SRTSM) extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model offers a better description of the data compared to the widely used GATSM. Moreover, the model can be used to summarize the macroeconomic effects of unconventional monetary policy at the ZLB. Using a simple factor-augmented vector autoregression (FAVAR), we show that the shadow rate calculated by our model exhibits similar dynamic correlations with macro variables of interest in the period since 2009 as the fed funds rate did in data prior to the Great Recession. This result gives us a tool for measuring the effects of monetary policy under the ZLB, using either historical estimates based on the fed funds rate or less precisely measured estimates inferred solely from the new data for the shadow rate alone. We show that the Fed has used unconventional policy measures to successfully lower the shadow rate. Our estimates imply that the Fed's efforts to stimulate the economy since 2009 have succeeded in lowering the unemployment rate by 0.13% relative to where it would have been in the absence of these measure. The third chapter, Effects of Unconventional Monetary Policies on the Term Structure of Interest Rates, offers a complete characterization of effects of unconventional monetary policies on interest rates by examining policies' impacts on the whole yield curve. I make use of the SRTSM to summarize all interest rates with factors of lower dimension so that I can capture responses of all interest rates in a parsimonious way. By investigating how policy announcements affect the three factors and then the whole forward curve accordingly, I find that during the ZLB period, forward rate with short maturities are constrained, while forward rates with long maturities still respond to policy announcements. Following each easing (tightening) policy announcement, long forward rates would decrease (increase) by 10 basis points on average.
Author: Assist. Prof. Dr. Erkan KARA
Publisher: EĞİTİM YAYINEVİ
ISBN: 6258223419
Category : Business & Economics
Languages : en
Pages : 99
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Book Description
This study is dedicated to investigating the long-run relation between interest rate spreads and economic activities which include industrial production, inflation, and unemployment rate- in OECD countries over the period between2005 and 2015 by using panel data analysis. This study will use the latest panel data models that take structural breaks and cross-sectional dependency into account. Besides using panel data analysis on this issue, this paper will also try to see the effect of new monetary policies that are taking place by major central banks on yield spread and economic activities, especially industrial production. As it is known that, in the post-financial crisis of 2008 period, major central banks such as the Federal Reserve1 (The FED was the first central bank that started to implement new monetary policies just after the collapse of several large-scale investment banks in the U.S), European Central Bank, Bank of Japan and Bank of England, have taken action to stimulate the world economy. Henceforth, not only these major central banks, but also other economies started to lower their policy interest rates soon in conventional way. These policies pushed interest rates almost to zero and since then the rates have remained very low due to lower output level and disinflationary fears.
Author: Charles Evans
Publisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 80
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Book Description
Author: Tong-hŏn Kim
Publisher:
ISBN:
Category : Business forecasting
Languages : en
Pages : 166
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Book Description
Author: Ben S. Bernanke
Publisher: www.bnpublishing.com
ISBN: 9781607961055
Category :
Languages : en
Pages : 0
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Book Description
The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate "noarbitrage" models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.
Author: Jacob B. Michaelsen
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 200
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Book Description
Author: Andreas Jobst
Publisher: International Monetary Fund
ISBN: 1475524471
Category : Business & Economics
Languages : en
Pages : 48
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Book Description
More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.
