The Signaling Channel for Federal Reserve Bond Purchases
Michael Bauer () and
Glenn Rudebusch ()
International Journal of Central Banking, 2014, vol. 10, issue 3, 233-289
Previous research has emphasized the portfolio balance effects of Federal Reserve bond purchases, in which a reduced bond supply lowers term premia. In contrast, we find that such purchases have important signaling effects that lower expected future short-term interest rates. Our evidence comes from a model-free analysis and from dynamic term structure models that decompose declines in yields following Federal Reserve announcements into changes in risk premia and expected short rates. To overcome problems in measuring term premia, we consider bias-corrected model estimation and restricted risk price estimation. In comparison with other studies, our estimates of signaling effects are larger in magnitude and statistical significance.
JEL-codes: E43 E52 (search for similar items in EconPapers)
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Working Paper: The signaling channel for Federal Reserve bond purchases (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2014:q:3:a:7
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