Can Central Banks Target Bond Prices?

Kenneth Kuttner

No 12454, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper addresses the possible role of bond prices as operating or intermediate targets for monetary policy. The paper begins with a brief review of the mechanisms through which a central bank could, in theory, influence long-term interest rates, and continues with a brief narrative overview of debt management policies in the U.S., tracing their effects on the maturity distribution of outstanding publicly-held Treasury debt and the composition of the assets held by the Federal Reserve System. The empirical section presents new econometric evidence on the effects of these policies on expected excess holding returns ("term premia"), demonstrating that changes in the Fed's holdings of long-term securities have had statistically significant and economically meaningful effects on the term premia associated with Treasury securities with maturities in the two- to five-year range.

JEL-codes: E43 E58 E63 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Published as Chung (ed.) “Monetary Policy in an Environment of Low Inflation.” Seoul: The Bank of Korea, 2006.

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