The Effects of Yield Control Monetary Policy: A Helicopter Money Drop to Financial Institutions

Robert Jarrow () and Sujan Lamichhane

Quarterly Journal of Finance (QJF), 2020, vol. 10, issue 01, 1-38

Abstract: On 21st September, 2016, the Bank of Japan (BOJ) embarked on a new unconventional monetary policy called yield curve control (YCC). We show that YCC creates an arbitrage opportunity in an otherwise frictionless and arbitrage-free government bond market which financial institutions can exploit. This arbitrage creates a wealth transfer from the BOJ to these financial institutions. We estimate the lower bound on this wealth transfer for the first 28 months to be $5.25 billion or ¥582.32 billion, which constitutes an unexplored policy externality. This corresponds to 7.49% per annum on the notional employed in this arbitrage strategy.

Keywords: Unconventional monetary policy; yield curve control; arbitrage; helicopter money; term structure of interest rates; policy externality (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.worldscientific.com/doi/abs/10.1142/S2010139220500044
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:10:y:2020:i:01:n:s2010139220500044

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010139220500044

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().