Quantitative easing auctions of Treasury bonds
Zhaogang Song and
Journal of Financial Economics, 2018, vol. 128, issue 1, 103-124
The Federal Reserve uses (reverse) auctions to implement its purchases of Treasury bonds in quantitative easing (QE). To evaluate dealers’ offers across multiple bonds, the Fed relies on its internal yield curve model, fitted to secondary market bond prices. From November 2010 to September 2011, a one standard deviation increase in the cheapness of a Treasury bond (how much the market price of the bond is below a model-implied value) increases the Fed’s purchase quantity of that bond by 276 million and increases the auction costs on that bond by 2.6 cents per $100 par value, controlling for standard covariates. Our results suggest that the Fed harvests gains from trades by purchasing undervalued bonds, but strategic dealers extract some profits because the Fed’s relative values can be partly inferred from price data.
Keywords: Quantitative easing; Auction; Treasury bond; Federal Reserve (search for similar items in EconPapers)
JEL-codes: G01 G12 G14 G18 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:1:p:103-124
Access Statistics for this article
Journal of Financial Economics is currently edited by G. William Schwert
More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().