The Effects of Quantitative Easing: Taking a Cue from Treasury Auctions

Yuriy Gorodnichenko and Walker Ray

No 24122, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: To understand the effects of large-scale asset purchase programs recently implemented by central banks, we study how markets absorb large demand shocks for risk-free debt. Using high-frequency identification, we exploit the structure of the primary market for U.S. Treasuries to isolate demand shocks. These shocks are sizable, leading to large movements in Treasury yields and impacting corporate borrowing rates. Informed by a preferred habitat model of the term structure, we test for “local” demand effects and find evidence consistent with theoretical predictions. Crucially, this local effect is strongest when financial markets are disrupted. Our estimates are consistent with the view that quantitative easing worked mainly via market segmentation, with a potentially limited role for other channels.

JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: EFG IFM ME
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Citations: View citations in EconPapers (24)

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