scholarly journals A model of the euro-area yield curve with discrete policy rates

2017 ◽  
Vol 21 (1) ◽  
Author(s):  
Jean-Paul Renne
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Euro Area ◽  
Yield Curve ◽  
Interest Rate Risk ◽  
Yield Data ◽  
No Arbitrage ◽  
Nominal Interest Rates ◽  
Low Interest Rates ◽  
Current Context

AbstractThis paper presents a no-arbitrage yield-curve model that explicitly incorporates the central-bank policy rate. This model is consistent with the existence of a lower bound for nominal interest rates, which makes it particularly relevant in the current context of extremely low interest rates. Changes in the policy rates depend on the monetary-policy phase, that can be either in an easing, status quo or tightening mode. The estimation of the model, based on daily euro-area yield data, reveals the strong influence of the monetary-policy phases on the shape of the yield curve. This relationship can, in turn, be exploited to estimate the probabilities of being in the different monetary-policy phases. The model is also used to compute term premiums, that are the parts of the yields reflecting the aversion of investors to interest rate risk. The results point to the existence of statistically significant premiums for many dates, even for short horizons.

scholarly journals Monetary Policy Surprises over Time

2018 ◽  
Vol 08 (01) ◽  
pp. 1840002 ◽  
Author(s):  
Marcello Pericoli ◽  
Giovanni Veronese
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Euro Area ◽  
Yield Curve ◽  
Sovereign Spreads ◽  
Definition Of ◽  
Term Premia ◽  
The Impact ◽  
Over Time

We document how the impact of monetary surprises on euro-area and US financial markets has changed from 1999 to date. We use a definition of monetary policy surprises, which singles out movements in the long-end of the yield curve — rather than those changing nearby futures on the central bank reference rates. By focusing only on this component of monetary policy, our results are more comparable over time. We find a hump-shaped response of the yield curve to monetary policy surprises, both in the pre-crisis period and since 2013. During the crisis years, Fed path-surprises, largely through their effect on term premia, account for the impact on interest rates, which is found to be increasing in tenor. In the euro area, the path-surprises reflect the shifts in sovereign spreads, and have a large impact on the entire constellation of interest rates, exchange rates and equity markets.

scholarly journals The Normalization of the European Central Bank’s Monetary Policy from an Austrian Perspective

2018 ◽  
pp. 359-371
Author(s):  
Leef H. Dierks
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Euro Area ◽  
Quantitative Easing ◽  
Fixed Income ◽  
Fixed Income Securities ◽  
Market Prices ◽  
European Central ◽  
The Us ◽  
Low Interest Rates

After several years of historically low interest rates and quantitative easing, the European Central Bank (ECB) has finally started wind-ing down its ultra-accommodative monetary policy in late 2018. Among the first steps tapering its asset purchase programme (APP), which foresees monthly purchases of up to €30bn per month until September 2018 — «or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of infla-tion consistent with its inflation aim» (ECB, 2018a). By then, pur-chases of euro area fixed income securities on behalf of the ECB will have mounted to as much as €2,550bn or almost 90% of euro area GDP (€2,834bn in market prices in Q4 2017, the latest date for which data were available (ECB, 2018b)). Further, according to market esti-mates, the first hike of the main refinancing rate, which was slashed to 0% in March 2016, could emerge in Q1 2019, thereby following a tightening of the monetary policy the US Federal Reserve (FED) had already started in December 2015 (FED, 2015).

scholarly journals Loose Monetary Policy and Corporate Investment of Manufacturing Firms in the Czech Republic

2018 ◽  
Vol 18 (4) ◽  
pp. 371-385
Author(s):  
Veronika Kajurová ◽  
Dagmar Linnertová
Keyword(s):  
Monetary Policy ◽  
Czech Republic ◽  
Interest Rates ◽  
Corporate Investment ◽  
Manufacturing Firms ◽  
Investment Activity ◽  
The Czech Republic ◽  
Low Interest Rates ◽  
Negative Effect

Abstract The aim of the paper is to evaluate the effects of loose monetary policy on corporate investment of manufacturing firms in the Czech Republic during the period between 2006 and 2015. The main focus of the paper is on the effect of low interest rates on investment activity of Czech firms; additionally, the effects of interactions between interest rate and other firm-specific variables are investigated. The results indicate that corporate investment is positively associated with firm size, investment opportunities, and long term debt. Also, a negative effect of the cash position is found. Further, the findings show that monetary policy is a significant determinant of firm investment activity: when the monetary policy is loose, investment is positively affected. Furthermore, differences in the determinants of investment between highly and low leveraged firms were revealed.

scholarly journals Causes of The Outbreak of the Eurozone Crises: The Role of the Usa and the European Central Bank Monetary Policy

e-Finanse ◽  
2015 ◽  
Vol 11 (2) ◽  
pp. 47-63
Author(s):  
Natalia Białek
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
European Central Bank ◽  
Institutional Design ◽  
Global Financial Crisis ◽  
European Central ◽  
Low Interest Rates ◽  
The Usa ◽  
The U.S

Abstract This paper argues that the loose monetary policy of two of the world’s most important financial institutions-the U.S. Federal Reserve Board and the European Central Bank-were ultimately responsible for the outburst of global financial crisis of 2008-09. Unusually low interest rates in 2001- 05 compelled investors to engage in high risk endeavors. It also encouraged some governments to finance excessive domestic consumption with foreign loans. Emerging financial bubbles burst first in mortgage markets in the U.S. and subsequently spread to other countries. The paper also reviews other causes of the crisis as discussed in literature. Some of them relate directly to weaknesses inherent in the institutional design of the European Monetary Union (EMU) while others are unique to members of the EMU. It is rather striking that recommended remedies tend not to take into account the policies of the European Central Bank.

scholarly journals Negative Interest Rate Risk. Atavism or Normalization of Central Banks’ Monetary Policy

2019 ◽  
Vol 3 (342) ◽  
pp. 89-116
Author(s):  
Irena Pyka ◽  
Aleksandra Nocoń
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Interest Rate Risk ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Negative Interest Rate Policy

In the face of the global financial crisis, central banks have used unconventional monetary policy instruments. Firstly, they implemented the interest rate policy, lowering base interest rates to a very low (almost zero) level. However, in the following years they did not undertake normalizing activities. The macroeconomic environment required further initiatives. For the first time in history, central banks have adopted Negative Interest Rate Policy (NIRP). The main aim of the study is to explore the risk accompanying the negative interest rate policy, aiming at identifying channels and consequences of its impact on the economy. The study verifies the research hypothesis stating that the risk of negative interest rates, so far unrecognized in Theory of Interest Rate, is a consequence of low effectiveness of monetary policy normalization and may adopt systemic nature, by influencing – through different channels – the financial stability and growth dynamics of the modern world economy.

Yield Curves, Swap Curves, and Term Structure of Interest Rates

2019 ◽  
pp. 203-228
Author(s):  
Tom P. Davis ◽  
Dmitri Mossessian
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Yield Curve ◽  
Yield Curves ◽  
No Arbitrage ◽  
Interest Rate Swap ◽  
The Interest Rate ◽  
Rate Swap ◽  
The U.S

This chapter discusses multiple definitions of the yield curve and provides a conceptual understanding on the construction of yield curves for several markets. It reviews several definitions of the yield curve and examines the basic principles of the arbitrage-free pricing as they apply to yield curve construction. The chapter also reviews cases in which the no-arbitrage assumption is dropped from the yield curve, and then moves to specifics of the arbitrage-free curve construction for bond and swap markets. The concepts of equilibrium and market curves are introduced. The details of construction of both types of the curve are illustrated with examples from the U.S. Treasury market and the U.S. interest rate swap market. The chapter concludes by examining the major changes to the swap curve construction process caused by the financial crisis of 2007–2008 that made a profound impact on the interest rate swap markets.

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