Skip to main content

Reaction of Swiss term premia to monetary policy surprises


An affine yield curve model is estimated on daily Swiss data 2002–2009. The market price of risk is modelled in terms of proxies for uncertainty, which are estimated from interest rate options. The estimated model generates innovations in the 3-month rate that are similar to external evidence of monetary policy surprises — as well as term premia that are consistent with survey data. The results indicate that a surprise increase in the policy rate gives a reasonably sized decrease (−0.25%) in term premia for longer maturities.


  • Ang, A., and M. Piazzesi (2003), “A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables”, Journal of Monetary Economics, 60, pp. 745–787.

    Article  Google Scholar 

  • Bolder, D. J., and S. Liu (2007), “Examiniming Simple Joint Macroeconomic and Termstructure Models: A Practitioner’s Perspective”, Working Paper 2007-49, Bank of Canada.

  • Chun, A. L. (2005), “Expectations, Bond Yields and Monetary Policy”, mimeo, Stanford University.

  • Diebold, F. X., and C. Li (2003), “Forecasting the Term Structure of Government Yields”, mimeo, University of Pennsylvania.

  • Duffee, G. R. (2002), “Term Premia and Interest Rate Forecasts in Affine Models”, Journal of Finance, 57, pp. 405–443.

    Article  Google Scholar 

  • Fischer, M. (2009), “The Relationship between German and US Risk Premia”, mimeo, University of St. Gallen.

  • Hördahl, P., O. Tristiani, and D. Vestin (2006), “A Joint Econometric Model of Macroeconomic and Term Structure Dynamics”, Journal of Econometrics, 131, pp. 405–444.

    Article  Google Scholar 

  • Kim, D. H., and A. Orphanides (2005), “Term Structure Estimation with Survey Data on Interest Rate Forecasts”, DP 5341, CEPR.

  • Lengwiler, Y., and C. Lenz (2010), “Intelligible Factors for the Yield Curve”, Journal of Econometrics, forthcoming.

  • Lildholdt, P., N. Panigirtzoglou, and C. Peacock (2007), “An Affine Macro-Factor Model of the UK Yield Curve”, Working Paper 322, Bank of England.

  • Pesaran, H. H., and Y. Shin (1998), “Generalized Impulse Response Analysis in Linear Multivariate Models”, Economics Letters, 58, pp. 17–29.

    Article  Google Scholar 

  • Ranaldo, A., and E. Rossi (2010), “The Reaction of Financial Assets to Swiss National Bank Communication”, Journal of International Money and Finance, forthcoming.

  • Ritchey, R. J. (1990), “Call Option Valuation for Discrete Normal Mixtures”, Journal of Financial Research, 13, pp. 285–296.

    Article  Google Scholar 

  • Söderlind, P. (2000), “Market Expectations in the UK before and after the ERM Crisis”, Economica, 67, pp. 1–18.

    Article  Google Scholar 

  • Söderlind, P., and L. E. O. Svensson (1997), “New Techniques to Extract Market Expectations from Financial Instruments”, Journal of Monetary Economics, 40, pp. 383–429.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations


Corresponding author

Correspondence to Paul Söderlind.

Additional information

I thank Christopher Meyer and Angelo Ranaldo for data and discussions; Eric Jondeau, Michael Fischer, Carlos Lenz and Nikola Mirkov for comments.

Rights and permissions

Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Reprints and Permissions

About this article

Cite this article

Söderlind, P. Reaction of Swiss term premia to monetary policy surprises. Swiss J Economics Statistics 146, 386–404 (2010).

Download citation

  • Published:

  • Issue Date:

  • DOI:


  • E27
  • E47


  • affine price of risk
  • interest rate caps
  • survey data