The interest rate effects of government bond purchases away from the lower bound

Rafael B. De Rezende ()

No 324, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: I analyze the recent experience of unconventional monetary policy in Sweden to study the interest rate transmission mechanisms of government bond purchases when interest rates are not constrained by a lower bound. Using dynamic term structure models and event study regressions I find that government bond purchases have important portfolio balance and signaling effects. The signaling channel operates mainly by lowering short-rate expectations in the intermediate segment of the yield curve, while the portfolio balance channel is effective in lowering longer maturity term premia. In addition, I find that target interest rate policy and government bond purchases operate in different segments of the yield curve. This suggests that a combination of the two policies can be used to lower interest rates across the whole maturity spectrum, making monetary policy more expansionary.

Keywords: quantitative easing; signaling channel; portfolio balance channel; yield curve; dynamic affine term structure models; short rate expectations; term premium (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-05-01
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The interest rate effects of government bond purchases away from the lower bound (2017)
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