Yield curve control

Mika Kortelainen

No 5/2020, BoF Economics Review from Bank of Finland

Abstract: We study the yield curve control in Eurozone. We apply Chen, Cúrdia and Ferrero (2012) model that uses a financial friction to break Wallace's neutrality. We calibrate a bond supply shock that corresponds to the observed change in the time premium in euro area when the APP program was introduced. With some model simulations, we show that the effectiveness of both unconventional monetary policy and fiscal policy are enhanced, when the yield curve control is applied. Thus, we find that the yield curve control can be an effective tool, if applied in a credible manner for a long enough time period during an effective lower bound episode.

Keywords: Yield curve control; monetary policy; fiscal policy; efficient lower bound; liquidity trap (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofecr:52020

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