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Reaction of Swiss term premia to monetary policy surprises

Summary

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.

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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.

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

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Söderlind, P. Reaction of Swiss term premia to monetary policy surprises. Swiss J Economics Statistics 146, 386–404 (2010). https://doi.org/10.1007/BF03399316

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  • DOI: https://doi.org/10.1007/BF03399316

JEL-Classification

  • E27
  • E47

Keywords

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