Three aspects of the Swiss term structure: an empirical survey

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.