the effects of the ecb s expanded asset purchase programme abstract this paper provides empirical evidence on the financial and macroeconomic impact of the news associated to the announcement launching the ecb s expanded asset purchase programme app we proxy the app announcement shock with an announcement variable derived from the institutional features of the app and survey based evidence the variable is used in a time varying coefficient var model with stochastic volatility to estimate the effects of the announcement shock the evidence suggests that this shock had a significant upward effect on both real economic activity and hicp inflation in the euro area the response of long term interest rates gave rise to a flattening of the yield curve in the short term followed by a steepening in the medium term several channels of transmission appear to have been activated including the portfolio rebalancing channel the exchange rate channel and the credit channel

what is the effect of unconventional monetary policy on bank performance this paper examines the relationship between unconventional monetary policy and the us banking performance unconventional monetary policy is captured through the central bank s assets and excess reserves results show that unconventional monetary policy has a negative relationship with bank performance further analysis shows that the negative association between unconventional monetary policy and performance is mitigated for banks with a high level of asset diversification and low deposit funding we also find that the negative relationship between unconventional monetary policy and performance subdues for deposit insured financial institutions finally we use dynamic panel threshold analysis which reveals that the negative association between unconventional monetary policy and bank performance is particularly pronounced above the reported threshold value

liquidity monetary policy and unemployment a new monetarist approach we discover a consumption channel of monetary policy in a model with money and government bonds when the central bank withdraws government bonds short term or long term through open market operations it lowers returns on bonds the lower return has a direct negative impact on consumption by households that hold bonds and an indirect negative impact on consumption by households that hold money as a result firms earn less profits from production which leads to higher unemployment the existence of such a consumption channel can help us understand the effects of unconventional monetary policy

international spillovers of large scale asset purchases this paper evaluates the international spillover eects of large scale asset purchases lsaps using a two country dynamic stochastic general equilibrium model with nominal and real rigidities and portfolio balance eects portfolio balance eects arise from imperfect substitution between short and long term bond portfolios in each country as well as between domestic and foreign bonds within these portfolios we show that lsaps lower both domestic and foreign long term yields and stimulate economic activity in both countries international spillover eects

monetary policy when interest rates are bounded at zero this paper assesses the importance of the zero lower bound on nominal interest rates for the interest rate channel of monetary policy we simulate several interest rate setting policy rules with ei

monetary policy rules macroeconomic stability and inflation a view from the trenches i estimate a forward looking monetary policy reaction function for the federal reserve for the periods before and after paul volcker s appointment as chairman in 1979 using information that was available to the fomc in real time from 1966 to 1995 the results suggest broad similarities in policy and point to a forward looking approach to policy consistent with a strong reaction to inflation forecasts during both periods this contradicts the hypothesis based on analysis with ex post constructed data that the instability of the great inflation was the result of weak fomc policy responses to expected inflation a difference is that prior to volcker s appointment policy was too activist in reacting to perceived output gaps that retrospectively proved overambitious drawing on contemporaneous accounts of fomc policy i discuss the implications of the findings for alternative explanations of the great inflation and the improvement in macroeconomic stability since then

quantitative easing in the 1930s during the 1934 39 recovery from the u s great depression overnight interest rates were usually at a lower bound meanwhile american monetary authorities followed policies related to today s debates on quantitative easing they tried to stabilize yields on treasury bonds with open market operations they created rapid growth in high powered money and they allowed transitory factors to affect high powered money effects of these policies on bond yields reveal a portfolio effect of short duration asset supply on term premiums this portfolio effect helps explain why high powered money growth was associated with recovery of real activity over 1934 39

identification and estimation of the linear in means model of social interactions abstract this paper studies identification and estimation of the linear in means model of social interactions using a quasi panel data approach we show how endogenous social effects can be identified in the presence of unobserved group effects

the effect of transaction size on off the run treasury prices this paper examines intra day trading data from the inter dealer broker market for u s treasury securities and measures the degree of price pressure in the off the run treasury market as is well known securities that would appear to be very close substitutes i e on the run and off the run treasury bonds behave as if there is some degree of market segmentation this is the first systematic study of the off the run treasury note and bond market focused entirely on a price pressure effect using intra day data the paper analyzes price pressure through matched pairs of securities that differ only in liquidity

interactions neighborhood selection and housing demand abstract this paper contributes to the growing literature that aims at identifying and measuring the impact of social context on individual economic behavior we develop a model of housing structure demand with neighborhood effects and neighborhood choice modeling neighborhood choice is of fundamental importance in estimating and understanding endogenous and contextual neighborhood effects controlling for non random sorting into neighborhoods allows for unbiased estimates and provides a means for identifying endogenous neighborhood effects estimation of the model exploits a household level data set that has been augmented with contextual information at two different levels scales of aggregation one is at the neighborhood level consisting of about ten neighbors with the data coming from the neighborhood clusters sub sample of the american housing survey a second level is the census tract to which these dwelling units belong these data were geocoded by means of privileged access to confidential us census data our results for the neighborhood choice model indicate that individuals prefer to live near others like themselves our estimates of the housing structure demand equation confirm that neighborhood effects are important in particular one s demand for housing depends on the mean of neighbors demand for housing

stop go monetary policy we propose and estimate several discrete choice models of monetary policy decision making that feature time varying inertia the models permit us to account for three stylized facts characterizing monetary policymaking in the united states 1 target interest rates are gradually adjusted in small discrete movements 2 there are some long stretches of time in which rates are repeatedly moved and 3 there are other long stretches in which the policy rate does not change our models are used to account for the fed s failure to adopt promptly an easier policy stance during the recession of 2001 they are also used to explain delay in tightening the policy stance during the 2003 2006 period that featured a bubble in house prices and was followed by a financial crisis in 2008

the lower bound and the causes of monetary policy inertia evidence from sweden abstractin 2009 in the midst of a global recession sweden s riksbank approached a lower bound on nominal interest rates this encounter with the lower bound provides a natural experiment for investigating the causes of monetary policy inertia to exploit this experiment we estimate taylor rules with tobit specifications that permit both interest rate smoothing and persistent shocks serial correlation as explanations for inertia the interest rate smoothing hypothesis leads to a specification in which lagged actual values of the dependent variable appear on the right hand side of the taylor rule while the persistent shocks hypothesis leads to a specification in which lagged values of an unobserved latent dependent variable appear on the right hand side of the taylor rule the divergence of actual and latent dependent variables that occurs at the lower bound provides leverage in distinguishing the two hypotheses for a conventional taylor rule we find evidence of both sources of inertia for a modifi

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

unconventional government debt purchases as a supplement to conventional monetary policy abstract in response to the great financial crisis the federal reserve the bank of england and many other central banks have adopted unconventional monetary policy instruments we investigate if one of these purchases of long term government debt could be a valuable addition to conventional short term interest rate policy even if the main policy rate is not constrained by the zero lower bound to do so we add a stylised financial sector and central bank asset purchases to an otherwise standard new keynesian dsge model asset quantities matter for interest rates through a preferred habitat channel if conventional and unconventional monetary policy instruments are coordinated appropriately then the central bank is better able to stabilise both output and inflation

the tax evasion social multiplier evidence from italy we estimate social externalities of tax evasion in a model where congestion of the auditing resources of local tax authorities generates a social multiplier identification is based on a contrast of the variance of tax evasion at different levels of aggregation we use a unique data set that contains audits of about 80 000 small businesses and professionals in italy and also provides an exact measure of reference groups in our model we find a social multiplier of about 3 which means that the equilibrium response to a shock that induces an exogenous variation in mean concealed income is about 3 times the initial average response this is a short run effect that persists to the extent that auditing resources are not adjusted to internalize the congestion externality

new keynesian models and monetary policy a re examination of the stylized facts using an empirical new keynesian model with optimal discretionary monetary policy we estimate key parameters the central bank s preference parameters the degree of forwardlooking behavior in the determination of inflation and output and the variances of inflation and output shocks to match some broad characteristics of u s data the parameterization we obtain implies a small concern for output stability but a large preference for interest rate smoothing and a small degree of forward looking behavior in price setting but a large degree of forward looking in the determination of output our methodology also allows us to carefully examine the consequences of alternative parameterizations and to provide intuition for our results

tobin s imperfect asset substitution in optimizing general equilibrium in this paper we present a dynamic optimizing model that allows explicitly for imperfect substitutability between different financial assets this is specified in a manner which captures tobin s 1969 view that an expansion of one asset s supply affects both the yield on that asset and the spread or risk premium between returns on that asset and alternative assets our estimates of this model on u s data confirm that some of the observed deviations of long term rates from the expectations theory of the term structure can be traced to movements in the relative stocks of financial assets the richer aggregate demand and asset specifications imply that there exists an additional channel of monetary policy our results suggest that central bank operations exercise a modest influence on the relative prices of alternative financial securities and so exert an extra effect on long term yields and aggregate demand separate from their effect on the expected path of short term rates

the euro area bond free float and the implications for qe this paper examines how shocks to government bond duration risk held by price sensitive investors affect the euro area term structure of interest rates and the wider macroeconomy we construct a new measure of the bond free float which adjusts total debt for foreign official holdings and weights by residual maturity using a small macrofinance bayesian vector autoregression var model we estimate that the first round of asset purchases under the european central bank s ecb public sector purchase program reduced euro area 10 year bond yields by around 30 bps in 2015 the positive impact on the output gap and inflation in 2016 was about 0 2 and 0 3 ppt respectively

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

effect of large scale social interactions on body weight i estimate models of endogenous social interactions in body weight at the county and state levels the results show that dispersion in body weight across time and space in the u s is not clearly excessive and that much of this variation can be attributed to observable individual and regional characteristics models exploiting variants of methods proposed by glaeser et al 2003 fixed effects instrumental variable and split sample instrumental variable methods to address endogeneity suggest that there are not large social multipliers on body weight outcomes the evidence suggests there may be small multipliers on bmi obesity and morbid obesity there is no evidence that underweight is subject to a social multiplier the results are sensitive to specification

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

understanding regression versus variance tests for social interactions this article considers the relationship between the use of regressions and the use of variance contrast methods to uncover social interactions we illustrate how these methods employ different identifying assumptions and are therefore complementary approaches we also provide formal identification results that extend existing ones for the two methods jel c12 c21 c23 z13 this article is designed to understand the relationshipbetweentwoapproachestotheempirical analysis of social interactions the first approach is the use of linear regressions to uncover social interactions this approach estimates social interaction effects through changes in the conditional linear expectation of individual outcomes when group level variables are included in the conditioning set in econometrics this method was first analyzed by manski 1993 who dubbed it the linearin means model since the group level variables are typically averages of individual variables within the group this model is also studied by brock and durlauf 2001a 2001b cohencole 2006 and graham and hahn 2005 among others durlauf 2004 surveyed empirical studiesof social interactionsbasedonsuch regressions the second approach originally proposed by glaeser sacerdote and scheinkman 1996 and developed into a full inferential procedure by graham 2005 who refers to this approachasvariancecontrasts usesintragroup variation in behavior to infer social interactions the idea in this approach is that social interactions willinduceintragroupdependences in behavior that affect sample variances for intragroup outcomes there has been relatively little work evaluating social interactions using variance contrasts one reason is that with the exception of graham s work there is little formal statistical theory for the approach the purpose of this article was to clarify the relationship between regression and variance contrast tests weclarify how these tests employ different informational assumptions to achieve identification of social interaction specifically we argue that regression and variance contrast approaches correspond to identification via exclusion restrictions in the one case and covariance restrictions on errors in the other as such the two approaches replicate the classes of identification strategies that appear in the classical simultaneous equations literature see fisher 1966 for a classic treatment the remainder of the article is organized as

using changes in auction maturity sectors to help identify the impact of qe on gilt yields this article uses a novel way of identifying part of the impact of quantitative easing qe on gilt yields using natural experiments associated with bank of england announcements about changes in the maturity distribution of future gilt purchases we find that changes in expected qe purchases had a significant effect on gilt yields following each announcement in march 2009 august 2009 and february 2012 the local supply effects we identify appear to be important they may account for around half of the total impact on gilt yields in these events and are passed through to yields of related assets

effects of explicit fomc policy rate guidance on interest rate expectations we quantify the impact of explicit fomc policy rate guidance announcements at the zero lower bound on eurodollar interest rate futures we find that they significantly reduced implied interest rates and led to a flattening of the yield curve

flow effects of central bank asset purchases on sovereign bond prices evidence from a natural experiment we estimate the response of sovereign bond prices to net supply shocks caused by purchase operations under the ecb s public sector purchase programme pspp to avoid simultaneity bias in the estimated relationship between prices and purchases we exploit a pspp feature that renders securities temporarily ineligible for reasons unrelated to their prices using these purchase restrictions as an instrument to identify exogenous variation in purchase volumes we find that pspp causes statistically significant and economically relevant upward price impacts the impacts are short lived and concentrated in securities issued by higher yield jurisdictions and characterized by higher maturity and lower liquidity

flow effects of large scale asset purchases how large scale asset purchase lsap programs affect financial markets is an important question for policy makers that face the zero lower bound while so called stock effects that is persistent shifts in asset prices observed as the result of an lsap program are relatively well documented in the literature there has been little study of flow effects that may occur at the time of lsap transactions using security level transaction data related to four distinct programs over a period of roughly four years we test for the presence of flow effects in both price and liquidity of treasury securities we show that flow effects in security prices were present during early lsaps by the federal reserve but they were of little economic significance alternatively we find no evidence for systematic liquidity flow effects in any of the lsap programs

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

measuring the effects of federal reserve forward guidance and asset purchases on financial markets i extend the methods of gurkaynak sack and swanson 2005 to separately identify the effects of federal reserve forward guidance and large scale asset purchases lsaps during the 2009 15 u s zero lower bound zlb period i find that both forward guidance and lsaps had substantial and highly statistically significant effects on medium term treasury yields stock prices and exchange rates comparable in magnitude to the effects of the federal funds rate before the zlb forward guidance was more effective than lsaps at moving short term treasury yields while lsaps were more effective than forward guidance and the federal funds rate at moving longer term treasury yields corporate bond yields and interest rate uncertainty however the effects of forward guidance were not very persistent with a half life of 1 4 months the effects of lsaps seem to be more persistent i conclude that overall in terms of these criteria lsaps were a more effective policy tool than forward guidance during the zlb period

conducting monetary policy at very low short term interest rates can monetary policy committees accustomed to describing their plans and actions in terms of the level of a short term nominal interest rate find effective means of conducting and communicating their policies when that rate is zero or close to zero the very low levels of interest rates in japan switzerland and the united states in recent years have stimulated much interesting research on this question and have led some central banks to make changes in their operating procedures and communications strategies in this paper we will give a brief overview of current thinking on the conduct of monetary policy when short term interest rates are very low or even zero monetary policy works for the most part by influencing the prices and yields of financial assets which in turn affect economic decisions and thus the evolution of the economy when the short term policy rate is at or near zero the conventional means of effecting monetary ease lowering the target for the policy rate is no longer feasible however it would be a mistake to think that monetary policy was impotent we discuss three strategies for stimulating the economy at an unchanged level of the policy rate these involve i providing assurance to investors that short rates will be kept lower in the future than they currently expect ii changing the relative supplies of securities in the marketplace by altering the composition of the central bank s balance sheet and iii increasing the size of the central bank s balance sheet beyond the level needed to set the short term policy rate at zero quantitative easing we also discuss the costs and benefits of very low interest rates an issue that bears on the question of whether the central bank should take the policy rate all the way to zero before undertaking alternative policies

international spillovers of quantitative easing abstract this paper develops a two country model with asset market segmentation to investigate the effects of quantitative easing implemented by the major central banks on a typical small open economy that follows independent monetary policy the model is able to replicate the key empirical facts on emerging countries response to large scale asset purchases conducted abroad including inflow of capital to local sovereign bond markets an increase in international comovement of term premia and change in the responsiveness of the exchange rate to interest rate differentials according to our simulations quantitative easing abroad boosts domestic demand in the small economy but undermines its international competitiveness and depresses aggregate output at least in the short run this is in contrast to conventional monetary easing in the large economy which has positive spillovers to output in other countries we also find that limiting quantitative easing spillovers might require policies that affect directly international capital flows like purchasing assets by the small economy s central bank

the ties that bind monetary policy and government debt management the financial crisis and subsequent economic recession led to a rapid increase in the issuance of public debt but large scale purchases of bonds by the federal reserve and other major central banks have significantly reduced the scale and maturity of public debt that would otherwise have been held by the private sector we present new evidence that tilting the maturity structure of private sector holdings significantly influences term premia even outside crisis times our framework helps explain both the bond yield conundrum and the effectiveness of quantitative easing we suggest that these findings raise two important policy questions one is should a central bank contrary to recent orthodoxy use its balance sheet as an additional complementary instrument of monetary policy to influence as part of the monetary transmission mechanism the long term interest rate the second is how should central banks and governments ensure that debt management properly takes account of the implications for both monetary and financial stability

the macroeconomic effects of quantitative easing in the euro area evidence from an estimated dsge model this paper analyses the macroeconomic effects of the ecb s quantitative easing programme using an open economy dsge model estimated with bayesian techniques using data on government debt stocks and yields across maturities we identify the parameter governing portfolio adjustment in the private sector shock decompositions suggest a positive contribution of ecb qe to ea year on year output growth and inflation of up to 0 4 and 0 5 pp in the standard linearised version of the model allowing for an occasionally binding zero bound constraint by using piecewise linear solution techniques raises the positive impact up to 1 0 and 0 7 pp respectively

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

asset substitutability and monetary policy an alternative characterization abstract a distance function is defined for a simple portfolio choice problem and then used to express the impact on asset prices of a change in an asset stock as the sum of a substitution and a wealth effect substitutes and complements are defined with reference to qualtity rather than price changes this method of characterizing asset substitutability leads to simpler and more easily interpreted results when analyzing monetary policy that does the standard approach which expresses asset price changes in terms of the price elasticities of the asset demand functions

monetary policy bond returns and debt dynamics abstract using the government s intertemporal budget constraint we quantify the contribution of returns paid on the u s government s debt portfolio to the evolution of the debt to gdp ratio we show that announcements of unconventional monetary policy measures by the federal reserve between 2008 iv and 2012 as a part of macroeconomic stabilization were associated with a sizable increase in returns and debt to gdp ratios and contributed to fiscal imbalances we use the federal reserve s portfolio composition as a proxy for unconventional monetary policy measures and show that it is significantly related to future bond returns and fiscal balances

escaping from a liquidity trap and deflation the foolproof way and others existing proposals to escape from a liquidity trap and deflation including my foolproof way are discussed in the light of the optimal way to escape the optimal way involves three elements 1 an explicit central bank commitment to a higher future price level 2 a concrete action that demonstrates the central bank s commitment induces expectations of a higher future price level and jump starts the economy and 3 an exit strategy that specifies when and how to get back to normal a currency depreciation is a direct consequence of expectations of a higher future price level and hence an excellent indicator of those expectations furthermore an intentional currency depreciation and a crawling peg as in the foolproof way can implement the optimal way and in particular induce the desired expectations of a higher future price level i conclude that the foolproof way is likely to work well for japan which is in a liquidity trap now as well as for the euro area and the united states in case either would fall into a liquidity trap in the future

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

assessing the effects of unconventional monetary policy and low interest rates on pension fund risk incentives this study quantifies the effects of persistently low interest rates near to the zero lower bound and unconventional monetary policy on pension fund risk incentives in the united states using two structural vector autoregressive var models and a counterfactual scenario analysis the results show that monetary policy shocks as identified by changes in treasury yields following changes in the central bank s target interest rates lead to a substantial increase in pension funds allocation to equity assets notably the shift from bonds to equity securities is greater during the period where the us federal reserve launched unconventional monetary policy measures additional findings show a positive correlation between pension fund risk taking low interest rates and the decline in treasury yields across both well funded and underfunded public pension plans which is thus consistent with a structural risk shifting incentive

optimal monetary policy when interest rates are bounded at zero abstract this paper characterizes the optimal monetary policy reaction function in the presence of a zero lower bound on the nominal interest rate we analytically prove and numerically show that the function is highly non linear more expansionary and more aggressive than the taylor rule we then test its empirical validity taking the case of japan in the 1990s qualitatively we find some evidence of non linear monetary policy quantitatively we find the actual monetary policy to be too contractionary during the first half of the decade while the low interest policy during the latter half turns out to be fairly consistent with the simulated path

the financial market impact of uk quantitative easing after outlining some of the monetary developments associated with quantitative easing qe we measure the impact of the uk s initial 2009 10 qe programme on bonds and other assets first we use a macro nance yield curve both to create a counterfactual path for bond yields and to estimate the impact of qe directly second we analyse the impact of individual qe operations on a range of asset prices we nd that qe signi cantly lowered government bond yields through the portfolio balance

price pressure in the government bond market what determines the term structure of interest rates standard economic theory links the interest rate for maturity t to the willingness of a representative agent to substitute consumption between times 0 and t the standard model contrasts sharply with a more informal view based on investors preferred habitat proposed by john culbertson 1957 and franco modigliani and richard sutch 1966 according to the preferred habitat view there are investor clienteles with preferences for specific maturities and the interest rate for a given maturity is influenced by the demand of the corresponding clientele and the supply of bonds with that maturity for example the typical clientele for long term bonds are pension funds an increase in their demand would be expected to raise prices of long term bonds and thus lower long term interest rates in short preferred habitat implies that there is price pressure in the bond market while the preferred habitat view has intuitive appeal it has not entered into the academic mainstream typically being relegated to a paragraph in mba level textbooks one reason for this is the mixed findings in early empirical studies of the term structure specifically between 1962 and 1964 the us treasury and federal reserve raised the supply of short term government debt while simultaneously lowering the supply of long term debt this program known as operation twist aimed to raise shortterm interest rates and so improve the balance of payments while also lowering long term rates to stimulate private investment a number of papers evaluated operation twist and while they reached different conclusions none found strong evidence that the operation was effective in flattening the term structure e g modigliani price pressure in the government bond market

the effectiveness of alternative monetary policy tools in a zero lower bound environment this paper reviews alternative options for monetary policy when the shortterm interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates we use a model of risk averse arbitrageurs to develop measures of how the maturity structure of debt held by the public might affect the pricing of level slope and curvature term structure risk we find that these treasury factors historically were quite helpful for predicting both yields and excess returns over 1990 2007 the historical correlations are consistent with the claim that if in december 2006 the fed were to have sold off all its treasury holdings of less than 1 year maturity about 400 billion and use the proceeds to retire treasury debt from the long end this might have resulted in a 14 basis point drop in the 10 year rate and an 11 basis point increase in the 6 month rate we also develop a description of how the dynamic behavior of the term structure of interest rates changed after hitting the zero lower bound in 2009 our estimates imply that at the zero lower bound such a maturity swap would have the same effects as buying 400 billion in long term maturities outright with newly created reserves and could reduce the 10 year rate by 13 basis points without raising short term yields

the federal reserve s large scale asset purchase programmes rationale and effects we provide empirical estimates of the effect of large scale asset purchases lsaps on longer term us treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred habitat literature and the duration channel associated with interest rate risk we also clarify lsaps role in the broader context of historical monetary policy strategy results indicate that lsap style operations mainly impact longer term rates via the nominal term premium within that premium the response is predominantly embodied in the real term premium the scarcity and duration channels both seem to be of considerable importance

a high frequency assessment of the ecb securities markets programme policy impact studies often suffer from endogeneity problems consider the case of the european central bank ecb securities markets programme if eurosystem interventions were triggered by sudden and strong price deteriorations looking at daily price changes may bias downward the correlation between yields and the amounts of bonds purchased simple regressions of daily changes in yields on quantities often give insignificant or even positive coefficients and therefore suggest that securities markets programme smp interventions have been ineffective or worse counterproductive we use high frequency data on purchases of the ecb securities markets programme and sovereign bond quotes to address the simultaneity and endogeneity issues we propose a vector autoregressive var framework estimated at several frequencies to better measure the smp impact and its persistence our results show that smp interventions have been effective in reducing yields of government bonds for the countries under the program

government financing decisions and asset returns abstract this paper presents an empirical investigation of the relation between government financing decisions and asset returns in particular the focus is on whether a substitution of debt financing for tax financing of a given level of expenditures is associated with an increase in interest rates the paper brings a different perspective to empirical investigations of government fiscal policies by examining the response of asset prices in an efficient capital market to such policies rather than focusing on aggregate consumption behavior the results are consistent with the idea that asset prices are unrelated to how the government finances its expenditures the results however also indicate that the capital market is not indifferent with respect to the level of government expenditures as higher interest rates are associated with increases in government purchases

announcements of ecb unconventional programs implications for the sovereign spreads of stressed euro area countries abstract this paper studies the effects of ecb communications about unconventional monetary policy operations on the sovereign spreads of greece ireland italy portugal and spain relative to germany between 2008 and 2012 more than fifty events concerning non standard operations are identified and classified with respect to the specific ecb program the empirical results suggest that the ecb announcements about unconventional monetary policies substantially reduced long term government bond yield spreads relative to german counterparts in all countries except greece particularly among the different types of measures news about the securities markets programme strongly affected the perceived sovereign risk of the five stressed euro area countries while the announcements of the outright monetary transactions seem to have a significant impact only in italy and spain

quantitative easing and unconventional monetary policy an introduction this article assesses the impact of quantitative easing and other unconventional monetary policies followed by central banks in the wake of the financial crisis that began in 2007 we consider the implications of theoretical models for the effectiveness of asset purchases and look at the evidence from a range of empirical studies we also provide an overview of the contributions of the other articles in this feature

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation