Short Rate Expectations, Term Premiums, and Central Bank Use of Derivatives to211 Reduce Policy Uncertainty

摘要

The term structure of interest rates is the primary transmission channel of211u001emonetary policy. Under the expectations hypothesis, anticipated settings of the 211u001eshort-term interest rate controlled by the central bank are the main determinants 211u001eof nominal bond rates. Historical experience suggests that bond rates may remain 211u001erelatively high even if the short-term interest rate is reduced to zero, in part 211u001edue to term premiums reflecting uncertainty about future policy. Term spreads due 211u001eto policy uncertainty may be reduced by central bank trading desk options that 211u001eprovide insurance against future deviations from an announced interest rate 211u001epolicy.