Skip to main content
SpringerLink
Log in

Three aspects of the Swiss term structure: an empirical survey

  • Published:
Financial Markets and Portfolio Management Aims and scope Submit manuscript

Abstract

The term structure is an important transmitter of, and indicator for, monetary policy. This paper studies the Swiss term structure using monthly data from 1989 to 2005. We study the impact of the new monetary policy strategy that the Swiss National Bank (SNB) adopted at the beginning of 2000 on three aspects of the term structure. First, we test the expectations hypothesis and find it confirmed at the short end of the yield curve. At the long end, time-varying term premia seem present. Second, we ask whether the yield curve contains information regarding future inflation and economic activity. We find that a steepening of the yield curve predicted an increase in economic activity in the short term before the change in policy strategy, but not thereafter. Third, we study the contemporaneous reaction of the term structure to macroeconomic conditions and conclude that the SNB’s commitment to stabilizing inflation may have become more credible after the change in the monetary policy strategy.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Assenmacher-Wesche, K., Gerlach, S.: Money growth, output gaps and inflation at low and high frequency: Spectral estimates for Switzerland. mimeo, BIS and SNB (2005)

  • Baltensperger, E., Fischer, A.M., Jordan, T.J.: Abstaining from inflation targets: Understanding the importance of strong goal independence, mimeo, SNB and University of Bern (2003)

  • Baltensperger E., Jordan T.J., Savioz M. (2001) The demand for M3 and inflation forecasts: an empirical analysis for Switzerland. Weltwirtschaftliches Archiv 137(2): 244–272

    Google Scholar 

  • Beer U. (1990) Eine Methode zur Schätzung der Zinsstruktur in der Schweiz. Swiss J. Econ. Stat. 1, 39–50

    Google Scholar 

  • Bernanke B.S. (1990) On the predictive power of interest rates and interest rate spreads. New Engl. Econ. Rev. November / December, 51–68

  • Bernard H., Gerlach S. (1998) Does the term structure predict recessions? The international evidence. Int. J. Financ. Econ. 3, 195–215

    Article  Google Scholar 

  • Bisignano J.R. (1987) A study of efficiency and volatility in government securities markets. mimeo, BIS

    Google Scholar 

  • Boudoukh, J., Richardson, M., Whitelaw, R.: The information in long-maturity foward rates: Implications for exchange rates and the forward premium anomaly. NBWER Working Paper 11840 (2005)

  • Büttler, H-J.: The information content of the yield curve. In: BIS Paper No 12, Market functioning and central bank policy, pp. 298–328 (2002)

  • Capitelli R.(1983) Die Zinsstruktur der Schweiz: Ein faktoranalytischer Ansatz im Frequenzbereich. Haag und Herchen, Frankfurt am Main

    Google Scholar 

  • Clarida R., Galí J., Gertler M. (1998) Monetary policy rules in practice: some international evidence. Eur. Econ. Rev. 42, 1033–1067

    Article  Google Scholar 

  • Cox J.C., Ingersoll J.E. Jr, Ross S.A. (1985) An intertemporal general equilibrium model of asset prices. Econometrica 53, 363–384

    Article  Google Scholar 

  • Cuthbertson K. (1996) Quantitative financial economics. Wiley, Chichester

    Google Scholar 

  • Deppner, C.: Die Schätzung der Zinsstruktur und deren Bedeutung in der – Eine empirische Untersuchung auf Basis von multiplen Regressions- und linearen mit Daten der schweizerischen Rentenmarktes. Rosch-Buch, Hallstadt (1992)

  • Estrella A., Hardouvelis G.A. (1991) The term structure as a predictor of real economic activity. J. Financ. 46(2): 555–576

    Article  Google Scholar 

  • Estrella A., Mishkin F. (1997) The predictive power of the term structure of interest rates in Europe and the United States: implications for the European Central Bank. Eur. Econ. Rev. 41, 1375–1401

    Article  Google Scholar 

  • Estrella A., Mishkin F.S. (1998) Predicting US recessions: financial variables as leading indicators. Rev. Econ. Stat. 80, 45–61

    Article  Google Scholar 

  • Fama E.F. (1990) Term-structure forecasts of interest rates, inflation and real returns. J. Monet. Econs. 25(1): 59–76

    Article  Google Scholar 

  • Fisher, I.: Appreciation and interest. Publications of the American Economic Association, pp. 23–29 and 88–92 (1896)

  • Gerlach S., Smets F. (1997) The term structure of euro-rates: some evidence in support of the expectations hypothesis. J. Int. Money Financ. 16, 305–321

    Article  Google Scholar 

  • Gerlach, S., Smets, F.: Exchange rate regimes and the expectations hypothesis of the term structure. In: Angeloni, I., Rovelli, R. (eds) Monetary Policy and Interest Rates. MacMillan Press (1998)

  • Gerlach-Kristen P. (2005) The impact of the new Swiss monetary policy framework on inflation expectations. mimeo, SNB

    Google Scholar 

  • Gerlach-Kristen, P.: Estimating a two-pillar Phillips curve for Switzerland. Swiss National Bank Working Paper 9 (2006)

  • Greene W.H. (1997) Econometric Analysis. Prentice-Hall, London

    Google Scholar 

  • Hardouvelis G.A. (1994) The term structure spread and future changes in long and short rates in the G7 countries. J. Monet. Econ. 33, 255–283

    Article  Google Scholar 

  • Heller D. (1997) Zinskurven und ihr Informationsgehalt für die Geldpolitik. Quartalsheft SNB 2, 167–176

    Google Scholar 

  • Hildebrand, P.: Vom Monetarismus zur Inflationsprognose: Dreissig Jahre schweizerische Geldpolitik, lecture given at the University of Bern, Nov 23, available at www.snb.ch (2004)

  • Hildebrand P. (2006) Monetary policy and financial markets. Financ. Markets Portf. Manage. 20(1): 7–18

    Article  Google Scholar 

  • Hsu C., Kugler P. (1996) Term premium and volatility: a nonlinear analysis of the Swiss interest rates. Swiss J. Econ. Stat. 132(2): 153–176

    Google Scholar 

  • Hsu C., Kugler P. (1997) The revival of the expectations hypothesis of the US term structure of interest rates. Econ. Lett. 55, 115–120

    Article  Google Scholar 

  • Jordan, T.J., Kugler, P.: Implementing Swiss monetary policy: Steering the 3M-LIBOR with repo transactions, mimeo, SNB and University of Basel (2003)

  • Jordan, T.J., Peytrignet, M., Rich, G.: The role of M3 in the policy analysis of the Swiss National Bank. In: Hans-Joachim, K., Willecke, C. (eds) Monetary Analysis: Tools and Applications. European Central Bank, Frankfurt, pp. 47–62 (2001)

  • Jorion P., Mishkin F. (1991) A multicountry comparison of term-structure forecasts at long horizons. J. Financ. Econ. 29, 59–80

    Article  Google Scholar 

  • Kugler P. (1988) An empirical note on the term structure and interest rate stabilization policies. Quart. J. Econ. 103, 789–792

    Article  Google Scholar 

  • Kugler, P.: The expectations hypothesis and interest rate volatility on the euromarket: some empirical results. In: Kähler, J., Kugler, P. (eds) Econometric Analysis of Financial markets. Physica-Verlag (1994)

  • Kugler P. (1996) The term structure of interest rates and regime shifts: some empirical results. Econ. Lett. 59, 121–126

    Article  Google Scholar 

  • Kugler P. (1997) Central bank policy reaction and the expectations hypothesis of the term structure. Int. J. Financ. Econ. 2, 217–224

    Article  Google Scholar 

  • Kugler P. (2002) The term premium, time varying interest rate volatility and central bank policy reaction. Econ. Lett. 76, 311–316

    Article  Google Scholar 

  • Mankiw G.N., Miron J.A. (1986) The changing behavior of the term structure of interest rates. Quart. J. Econ. 101, 211–228

    Article  Google Scholar 

  • McCallum, B.T.: Monetary policy and the term structure of interest rates. NBER Working Paper 4938 (1994)

  • Meier I. (1999) Estimating the term structure of interest rates: the Swiss case. mimeo, University of Bern

    Google Scholar 

  • Mishkin F.S. (1990) The information in the longer maturity term structure about future inflation. Quart. J. Econ. 105(3): 815–828

    Article  Google Scholar 

  • Mishkin F.S. (1991) A multi-country study of the information in the shorter maturity term structure about future inflation. J. Int. Money Financ. 10, 2–22

    Article  Google Scholar 

  • Mishkin, F.S.: Inflation targeting. In: Brian, S., Vane, H.R. (eds), An encyclopedia of macroeconomics, Edward Elgar, Cheltenham, UK (2002)

  • Olivei, G.P.: Switzerland’s approach to monetary policy. Federal Reserve Bank of Boston New England Economic Review, pp. 57–60 (2002)

  • Peytrignet, M.: Swiss monetary policy under a flexible exchange rate regime: monetary targets in practice. In: Bank of Canada, Money, Monetary policy, and transmission mechanisms, pp. 193–219 (1999)

  • Rich, G.: Swiss monetary targeting 1974–1996: the role of internal policy analysis. European Central Bank Working Paper 236 (2003)

  • Shiller, R.J.: The term structure of interest rates. In: Friedman, B.M., Hahn, F.H. (eds) Handbook of Economics. North Holland, Amsterdam (1990)

  • Swiss National Bank: Quartalsheft 1, 51–56 (1983)

  • Swiss National Bank: Quartalsheft 4, 8–13 (1999)

  • Swiss National Bank: Quartalsheft 2, 64–73 (2002)

  • Svensson L.E.O. (1997) Inflation forecast targeting: Implementing and monitoring inflation targets. Eur Econ. Rev. 41, 1111–1146

    Article  Google Scholar 

  • Taylor J.B. (1993) Discretion versus policy rules in practice. Carnegie-Rochester Conf. Ser. Publ. Policy 39, 195–214

    Article  Google Scholar 

  • Tobler J. (1999) Ein zweistufiges Verfahren zur Schätzung der Zinskurve. Swiss J. Econ. Stat. 135(1): 41–74

    Google Scholar 

  • Unternährer, M.: Geldpolitik, Zinsspread und realwirtschaftliche Aktivität in der Schweiz, Institut für empirische Wirtschaftsforschung der Universität Zürich, Band 39, Verlag Schellenberg, Winterthur (1997)

  • Woodford, M.: Nonstandard indicators for monetary policy: Can their usefulness be judged from forecasting regressions? In: Gregory Mankiw, N. (ed) Monetary Policy. NBER and University of Chicago Press (1994)

Download references

Author information

Authors and Affiliations

  1. Swiss National Bank and University of Basel, Börsenstrasse 15, 8022, Zürich, Switzerland

    Petra Gerlach-Kristen

Authors
  1. Petra Gerlach-Kristen
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Petra Gerlach-Kristen.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Gerlach-Kristen, P. Three aspects of the Swiss term structure: an empirical survey. Fin Mkts Portfolio Mgmt 21, 221–240 (2007). https://doi.org/10.1007/s11408-007-0048-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11408-007-0048-4

Keywords

JEL Classification

Search

Navigation