Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Christian Grisse
Author-Name-First: Christian
Author-Name-Last: Grisse
Author-Person: pgr250
Author-Name: Signe Krogstrup
Author-Name-First: Signe
Author-Name-Last: Krogstrup
Author-Person: pkr44
Author-Name: Dr. Silvio Schumacher
Author-Name-First: Silvio
Author-Name-Last: Schumacher
Author-Person: psc617
Title: Lower bound beliefs and long-term interest rates
Abstract: We study the transmission of changes in the believed location of the lower bound to longterm interest rates since the introduction of negative interest rate policies. The expectations hypothesis of the term structure combined with a lower bound on policy rates suggests that the transmission of policy rate changes to long-term interest rates is reduced when policy rates approach this lower bound. We show that if market participants revise downward the believed location of the lower bound, this may reduce long-term yields and increase transmission. A cross-country event study suggests that such effects have been empirically relevant during the recent negative interest rate episode.
Length: 48 pages
Creation-Date: 2017
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2017/working_paper_2017_05
File-Format: text/html
Number: 2017-05
Classification-JEL: E43, E52
Keywords: Monetary policy, negative interest rates, lower bound, yield curve, term structure
Handle: RePEc:snb:snbwpa:2017-05