The Financial Crisis and the Changing Dynamics of the Yield Curve
AbstractWe present evidence on the changing dynamics of the yield curve from 1998 to 2011. We identify four different phases. As expected, the financial crisis represents a period of elevated yield volatility, but it can be split into two distinct periods. The split occurs when the Federal Reserve reached the zero lower bound. This bound suppressed volatility in the short end of the yield curve while increasing volatility in the long end — despite lower overall volatility in financial markets. In line with previous studies, we find that announcements with regard to the Federal Reserve’s large scale asset purchases reduce longer term yields. We also quantify the effect of widely observed economic news, such as the non-farm payrolls and other items, on the yield curve.
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Bibliographic InfoPaper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2012/06.
Date of creation: 2012
Date of revision:
term structure of interest rates; financial crisis; interest rate dynamics; LSAP; unconventional monetary policy;
Other versions of this item:
- Morten L Bech & Yvan Lengwiler, 2012. "The financial crisis and the changing dynamics of the yield curve," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 257-276 Bank for International Settlements.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-13 (All new papers)
- NEP-FMK-2012-06-13 (Financial Markets)
- NEP-MAC-2012-06-13 (Macroeconomics)
- NEP-MON-2012-06-13 (Monetary Economics)
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