We study the effectiveness of negative interest rate policy on the yield curve with a new shadow-rate term structure model. We price bonds with forward-looking agents in a model with a discrete policy rate and a non-constant spread between it and short term government bond yields. Our model matches the yield data, and we find increasing and decreasing the lower bound have asymmetric effects on the yield curve. A 10 basis-point drop in the lower bound lowers the 10-year yield by 6.5 to 8.5 basis points, and a 10 basis-point initial rise increases it by 9 to 14 basis points. Joint with Fan Dora Xia.

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