The natural yield curve: its concept and developments in Japan

Recent monetary policies aiming to influence the entire yield curve have come to play a more prominent role in advanced economies as there has been little room for further lowering the short-term interest rate. This means that the effects of monetary easing cannot be fully captured by the single gap between the actual real short-term rate of interest and the corresponding natural rate of interest. This article proposes the concept of the natural yield curve, which extends the idea of the natural rate of interest defined at a specific maturity to one defined for all maturities. The gap between the actual real yield curve and the natural yield curve enables us to measure not only the effects of conventional monetary policy through short-term interest rate control but also those of unconventional monetary policy through government bond purchases and forward guidance.