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Operational targets and the yield curve: The euro area and Switzerland

Author

Listed:
  • Kedan, Danielle

    (Central Bank of Ireland)

  • Stuart, Rebecca

    (Central Bank of Ireland)

Abstract

When setting monetary policy, central banks seek to a ect the entire term structure of interest rates. Most central banks with a price stability or in ation mandate do this by targeting a very short-term market rate. This Letter presents a comparative analysis of the correlation between policy rate changes and bond yields in the euro area, where the implicit target of monetary policy is the overnight rate, and Switzerland, where the target is a three- month rate. The analysis indicates that unanticipated policy rate changes by the European Central Bank and Swiss National Bank are signi cantly and positively correlated with changes in German and Swiss government bond yields out to 6 years and 20 years, respectively.

Suggested Citation

  • Kedan, Danielle & Stuart, Rebecca, 2014. "Operational targets and the yield curve: The euro area and Switzerland," Economic Letters 04/EL/14, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:04/el/14
    as

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    File URL: https://centralbank.ie/docs/default-source/publications/economic-letters/economic-letter---vol-2014-no-4.pdf?sfvrsn=10
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    References listed on IDEAS

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    6. Puriya Abbassi & Dieter Nautz & Christian Offermanns, 2010. "Interest Rate Dynamics and Monetary Policy Implementation in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 146(I), pages 313-340, March.
    7. Marlene Amstad & Antoine Martin, 2011. "Monetary policy implementation: common goals but different practices," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 17(Nov).
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    Cited by:

    1. Ampudia, Miguel & Heuvel, Skander Van den, 2018. "Monetary policy and bank equity values in a time of low interest rates," Working Paper Series 2199, European Central Bank.
    2. Goodhead, Robert, 2018. "The Effect of ECB Policy Announcements on Sovereign Yields: A Return to Normal Transmission?," Economic Letters 4/EL/18, Central Bank of Ireland.

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