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Negative Interest Rate Policy and the Yield Curve

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  • Jing Cynthia Wu
  • Fan Dora Xia

Abstract

We evaluate the implications of the ECB's negative interest rate policy (NIRP) on the yield curve. To capture various shapes of the short end of the yield curve induced by the NIRP, we introduce two policy indicators, which summarize the immediate and longer-horizon future monetary policy stances. We find the four NIRP events lowered the short term interest rate by the same amount. The impact is dampened at longer maturities for the first two event dates due to lack of forward guidance. In contrast, in the last two dates, forward guidance drives the largest effects in two years.

Suggested Citation

  • Jing Cynthia Wu & Fan Dora Xia, 2018. "Negative Interest Rate Policy and the Yield Curve," NBER Working Papers 25180, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25180
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    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

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