The Term Structure of Interest Rates and Monetary Policy during a Zero Interest Rate Period
This paper empirically evaluates the validity of the term structure of interest rates in a low interest rate environment using high-frequency Japanese data. Allowing for the time-varying term premium, we obtain evidence that when interest rates are low and the short end of the term structure is studied, there is no evidence to support the term- structure relationship. This poor performance is attributed to little information in the interest rate spread that can be used to predict future economic activity and/or to the absence of the persistent term premium. In contrast, some evidence for the term-structure relationship is found when the long end of the term-structure data is considered during a relatively high interest rate period.
Volume (Year): 22 (2004)
Issue (Month): 2 (May)
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