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The natural yield curve

: its concept and measurement

June 4, 2015
Kei Imakubo*1
Haruki Kojima*2
Jouchi Nakajima*3

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Abstract

This paper illustrates the concept of the natural yield curve and how to measure it. The natural yield curve extends the idea of the natural rate of interest defined at a single maturity to one defined for all maturities. If the actual real yield curve matches the natural yield curve, the output gap will converge to zero. An empirical analysis using data for Japan shows that past monetary easing programs expanded the gap between the actual real yield curve and the natural yield curve mainly for short and medium maturities and led to accommodative financial conditions. By contrast, the quantitative and qualitative monetary easing policy has expanded the gap for long maturities as well as short and medium maturities. The natural yield curve is expected to provide a useful benchmark in the conduct of both conventional monetary policy and unconventional monetary policy aiming to influence the entire yield curve.

JEL Classifications
C32, E43, E52, E58

Keywords
Natural yield curve; Yield curve gap; Natural rate of interest; Interest rate gap; Term structure

We are grateful for helpful comments from the staff of the Bank of Japan. The views expressed herein are those of the authors alone and do not necessarily reflect those of the Bank of Japan.

  •   *1 Monetary Affairs Department, Bank of Japan
    E-mail : kei.imakubo@boj.or.jp
  •   *2 Monetary Affairs Department, Bank of Japan
    E-mail : haruki.kojima@boj.or.jp
  •   *3 Monetary Affairs Department, Bank of Japan
    E-mail : jouchi.nakajima@boj.or.jp

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