Reaction of Swiss Term Premia to Monetary Policy Surprises
University of St. Gallen; Centre for Economic Policy Research (CEPR); University of St. Gallen - SoF: School of Finance
December 15, 2009
Swiss Journal of Economics and Statistics, Vol. 146, pp. 385-404, 2010
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.
Number of Pages in PDF File: 22
Keywords: affine price of risk, interest rate caps, survey data
JEL Classification: E27, E47working papers series
Date posted: December 20, 2009 ; Last revised: June 11, 2013
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