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The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period

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  • Mr. Jun Nagayasu

Abstract

This paper empirically evaluates the validity of the term structure of interest rates in a low-interest-rate environment. Applying a time-series method to high-frequency Japanese data, the term-structure model is found to be useful for economic analysis only when interest rates are high. When interest rates are low, the usefulness of the model declines, since the interest spread contains little information that can be used for predicting future economic activity. The term-structure relationship is also weakened by the Bank of Japan's use of interest rate smoothing.

Suggested Citation

  • Mr. Jun Nagayasu, 2003. "The Term Structure of Interest Rates and Monetary Policy During a Zero-Interest-Rate Period," IMF Working Papers 2003/208, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/208
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    Cited by:

    1. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
    2. Kagraoka, Yusho & Moussa, Zakaria, 2013. "Quantitative easing, credibility and the time-varying dynamics of the term structure of interest rate in Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 181-201.
    3. Shigeru Iwata, 2010. "Monetary Policy and the Term Structure of Interest Rates When Short-Term Rates Are Close to Zero," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 59-78, November.
    4. Sugita, Katsuhiro & 杉田, 勝弘, 2006. "Time Series Analysis of the Expectations Hypothesis for the Japanese Term Structure of Interest Rates in the Presence of Multiple Structural Breaks," Discussion Papers 2006-15, Graduate School of Economics, Hitotsubashi University.

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    More about this item

    Keywords

    WP; monetary policy; zero interest rates; quantitative-easing policy; reaction function; interest rate channel; BoJ's interest rate-smoothing behavior; short-term interest rates; expectations channel; Short term interest rates; Long term interest rates; Yield curve; Estimation techniques; Zero lower bound; Global;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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