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

No 2003/208, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; monetary policy; zero interest rates; quantitative-easing policy; reaction function; interest rate channel; BoJ's interest rate-smoothing behavior; short-term interest rates; expectations channel; Short term interest rates; Long term interest rates; Yield curve; Estimation techniques; Zero lower bound; Global (search for similar items in EconPapers)
Pages: 31
Date: 2003-10-01
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Citations: View citations in EconPapers (3)

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Journal Article: The Term Structure of Interest Rates and Monetary Policy during a Zero Interest Rate Period (2004)
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