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Lower Bound Beliefs and Long-Term Interest Rates

We study the transmission of changes in the believed location of the lower bound to longterm interest rates since the introduction of negative interest rate policies. The expectations hypothesis of the term structure combined with a lower bound on policy rates suggests that normal policy transmissio...

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Bibliographic Details
Main Author: Grisse, Christian
Other Authors: Krogstrup, Signe, Schumacher, Silvio
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2017
Series:IMF Working Papers
Subjects:
Interest Rates
Finance
Monetary Economics
Financial Services
Short Term Interest Rates
Banks And Banking
Negative Interest Rates
Monetary Policy
Banking
Zero Lower Bound
Interest Rates: Determination, Term Structure, And Effects
Long Term Interest Rates
Money And Monetary Policy
Central Bank Policy Rate
Japan
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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520 |a We study the transmission of changes in the believed location of the lower bound to longterm interest rates since the introduction of negative interest rate policies. The expectations hypothesis of the term structure combined with a lower bound on policy rates suggests that normal policy transmission is reduced when policy rates approach this lower bound. We show that if market participants revise downward the believed location of the lower bound, this may in itself reduce long-term yields. Moreover, normal policy transmission to long-term rates increases. A cross-country event study suggests that such effects have been empirically relevant during the recent negative interest rate episode 

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