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The effects of Federal Reserve's quantitative easing and balance sheet normalization policies on long-term interest rates

Sophocles Brissimis and Evangelia Georgiou

No 299, Working Papers from Bank of Greece

Abstract: This paper develops a macro-finance term structure model based on the expectations hypothesis extended to include a time-varying term premium. The model establishes inter alia the link between quantitative easing and the term premium, allowing us to measure the total impact on the bond yield of all phases of the Fed's unconventional monetary policy implementation, including balance sheet expansion and normalization. Furthermore, by focusing on the long-run behavior of the model, an estimate of the equilibrium real interest rate is derived capturing longer-run macroeconomic trends, including the Fed's, pre-financial crisis, balance-sheet trend.

Keywords: Quantitative easing; balance sheet normalization; term structure; time-varying term premium; equilibrium real interest rate (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Pages: 75
Date: 2022-06
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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