Are Unconventional Monetary Policies Effective?

Urszula Szczerbowicz

No 1107, Working Papers CELEG from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: This paper evaluates the impact of unconventional and conventional monetary policies in the U.S. on the Libor-OIS spread, long-term interest rates and long-term inflation expectations. To this purpose we investigate the behavior of selected asset yields on the days of monetary policy announcements. We find that liquidity facilities other than TAF reduced the three-month Libor-OIS spread. The QE1 purchases of longer-term Treasury securities and agency debt/MBS lowered long-term interest rates. Furthermore, we find evidence that the Fed's rescue operations and QE2 raised long-term inflation expectations. Our results show that QE1 and QE2 had different effects: QE1 reduced long-term interest rates without raising inflation expectations, whereas QE2 raised inflation expectations and did not lower long-term interest rates. We also consider the impact of fiscal policy announcements. We find that the government bailouts reduced the three-month Libor-OIS spread while the fiscal stimulus announcements raised long-term inflation expectations.

Keywords: unconventional monetary policy; inflation expectations; long-term interest rates; Libor-OIS spread; announcements effect. (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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