The response of long-term yields to negative interest rates: evidence from Switzerland
Christian Grisse and Silvio Schumacher
Monetary policy, negative interest rates, zero lower bound, yield curve
This paper studies the transmission of changes in short-term interest rates to longer-term government bond yields when interest rates are at very low levels or negative. We focus on Switzerland, where short-term interest rates have been at zero since late 2008 and negative since the beginning of 2015. The expectations hypothesis of the term structure implies that as nominal interest rates approach their lower bound, the eﬀect of short-term rates on longer-term yields should decline, and positive short rate changes should have larger absolute eﬀects than negative short rate changes. Contrary to studies of other countries, we ﬁnd no evidence for a decline in the eﬀect of short rate changes for the low-interest rate period using Swiss data. However, we do ﬁnd evidence for the predicted asymmetric eﬀect for positive and negative short rate changes during the period when short-term rates are close to zero. This asymmetry normalized again after the introduction of negative interest rates.