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The natural yield curve: its concept and measurement

Author

Listed:
  • Kei Imakubo

    (Bank of Japan)

  • Haruki Kojima

    (Bank of Japan)

  • Jouchi Nakajima

    (Bank of Japan)

Abstract

This paper illustrates the concept of the natural yield curve and how to measure it. The natural yield curve extends the idea of the natural rate of interest defined at a single maturity to one defined for all maturities. If the actual real yield curve matches the natural yield curve, the output gap will converge to zero. An empirical analysis using data for Japan shows that past monetary easing programs expanded the gap between the actual real yield curve and the natural yield curve mainly for short and medium maturities and led to accommodative financial conditions. By contrast, the quantitative and qualitative monetary easing policy has expanded the gap for long maturities as well as short and medium maturities. The natural yield curve is expected to provide a useful benchmark in the conduct of both conventional monetary policy and unconventional monetary policy aiming to influence the entire yield curve.

Suggested Citation

  • Kei Imakubo & Haruki Kojima & Jouchi Nakajima, 2015. "The natural yield curve: its concept and measurement," Bank of Japan Working Paper Series 15-E-5, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp15e05
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    Cited by:

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    2. Brand, Claus & Goy, Gavin W & Lemke, Wolfgang, 2020. "Natural rate chimera and bond pricing reality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224546, Verein für Socialpolitik / German Economic Association.
    3. Murasawa Yasutomo, 2022. "Bayesian multivariate Beveridge–Nelson decomposition of I(1) and I(2) series with cointegration," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 26(3), pages 387-415, June.
    4. Kazutoshi Kan & Yui Kishaba & Tomohiro Tsuruga, 2016. "Supplementary Paper Series for the "Comprehensive Assessment" (3): Policy Effects since the Introduction of Quantitative and Qualitative Monetary Easing (QQE) -- Assessment Based on Bank of ," Bank of Japan Working Paper Series 16-E-15, Bank of Japan.
    5. NAKAJIMA, Jouchi & SUDO, Nao & HOGEN, Yoshihiko & TAKIZUKA, Yasutaka, 2023. "On the estimation of the natural yield curve," Discussion Paper Series 753, Institute of Economic Research, Hitotsubashi University.
    6. Campbell Leith & Eric Leeper, 2016. "Understanding Inflation as a Joint Monetary-Fiscal Phenomenon," Working Papers 2016_01, Business School - Economics, University of Glasgow.
    7. Brand, Claus & Goy, Gavin W & Lemke, Wolfgang, 2020. "Natural rate chimera and bond pricing reality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224546, Verein für Socialpolitik / German Economic Association.
    8. Mr. Fei Han, 2019. "Demographics and the Natural Rate of Interest in Japan," IMF Working Papers 2019/031, International Monetary Fund.
    9. Pakasa Bary & Yoga Affandi & Berry A. Harahap & Fenty T. Suryani, 2020. "Natural Yield Curve: The Case of Indonesia," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 14(2), June.
    10. Leeper, E.M. & Leith, C., 2016. "Understanding Inflation as a Joint Monetary–Fiscal Phenomenon," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2305-2415, Elsevier.
    11. Yosuke Okazaki & Nao Sudo, 2018. "Natural Rate of Interest in Japan -- Measuring its size and identifying drivers based on a DSGE model --," Bank of Japan Working Paper Series 18-E-6, Bank of Japan.
    12. Lee, Dong Jin & Hahm, Joon-Ho & Park, Hail & Park, Ki Young, 2020. "Measuring the Natural Rate of Interest with Financial Gaps: The Cases of Japan and South Korea," Japan and the World Economy, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Natural yield curve; Yield curve gap; Natural rate of interest; Interest rate gap; Term structure;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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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