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The negative interest rate policy and the yield curve

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  • Dora Xia
  • Jing Cynthia Wu

Abstract

We extract the market's expectations about the ECB's negative interest rate policy from the euro area's yield curve and study its impact on the yield curve. To capture the rich dynamics taking place at the short end of the yield curve, we introduce two policy indicators that summarise the immediate and longer-horizon future monetary policy stances. The ECB has cut interest rates four times under zero. We find that the June 2014 and December 2015 cuts were expected one month ahead but that the September 2014 cut was unanticipated. Most interestingly, the March 2016 cut was expected four months ahead of the actual cut.

Suggested Citation

  • Dora Xia & Jing Cynthia Wu, 2018. "The negative interest rate policy and the yield curve," BIS Working Papers 703, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:703
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    More about this item

    Keywords

    negative interest rate policy; effective lower bound; term structure of interest rates; shadow rate term structure model; regime-switching model;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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