Open AccessPosted Content
Fed Asset Buying and Private Borrowing Rates
TLDR
In this article, the authors reviewed the impact of the Fed's balance sheet policies on private borrowing rates, such as corporate bond yields and mortgage rates, and examined the channels through which they likely have affected longer-term interest rates.Abstract:
With the federal funds rate, the traditional policy tool of the Federal Reserve, effectively reaching zero in late 2008, policymakers have turned to unconventional policy tools to further ease the stance of monetary policy (Williams 2011). These tools are aimed at lowering longer-term interest rates to stimulate economic activity and reduce unemployment. They can be grouped into two categories: communication and balance sheet policies. The Federal Open Market Committee (FOMC) has taken new communication initiatives by providing forward guidance about future policy. In August 2011, it started to explicitly lay out its expectations for the future path of the federal funds rate. The Fed’s unconventional balance sheet policies began in 2009 with a program of large-scale asset purchases (LSAPs) of Treasury and mortgage-backed securities, followed by further purchase programs. These purchases have been designed to put downward pressure on longer-term interest rates. Unconventional monetary policy actions can only be successful in stimulating the economy if they lower the interest rates that matter most for businesses and households, that is, the private borrowing rates that determine the cost of funds for the private sector. This Economic Letter reviews the Fed’s balance sheet programs, providing evidence about their impact on private borrowing rates, such as corporate bond yields and mortgage rates. To help understand the financial-market effects of these programs, the Letter examines the channels through which they likely have affected longer-term interest rates. It also looks at mortgage spreads, which capture the difference between the return to investors on mortgage bonds and mortgage costs to homeowners, focusing on factors that may limit pass-through to primary mortgage rates. Three rounds of asset purchasesread more
Citations
More filters
Posted Content
The Effects of U.S. Monetary Policy on Emerging Market Economies' Sovereign and Corporate Bond Markets
TL;DR: This article analyzed the effect of the US Federal Reserve's monetary policy on EME sovereign and corporate bond markets by focusing on two dimensions: the evolution of the structure (size and currency composition) of the bond markets and their allocations within the bond portfolios of US investors.
Posted Content
Fed communication and the zero lower bound
TL;DR: In this article, a measure based on news reports of Fed communications suggests that this tool gave the Fed some ability to affect long-term yields through its communications, and the authors assess how effective these communications were by estimating how interest rates on bonds with different maturities reacted to Fed communications before and after the zero bound period.
Posted Content
Commentary: methods of policy accommodation at the interest-rate lower bound
TL;DR: Woodford as discussed by the authors was a participant at this year's Federal Reserve Bank of Kansas City conference and was the discussant of his paper, which was probably the longest paper at this conference but dense with insight.
Journal ArticleDOI
Stock Market Responses Under Quantitative Easing: State Dependence and Transparency in Monetary Policy
Yoshiyuki Nakazono,Satoshi Ikeda +1 more
TL;DR: In this paper, the effects of unconventional monetary policies adopted by the Bank of Japan from the year 2001 to 2006 were evaluated using data on intraday 3-month Euroyen futures rates, showing that stock markets do not react to a policy surprise in an expected manner and negatively respond to a monetary easing surprise.
Posted Content
The Response of Asset Prices to Abenomics: Is It a Case of Self-Fulfilling Expectations?
TL;DR: In this article, the authors argue that a non-negligible portion of the asset price response seems based on investors' excess optimism concerning the effectiveness of non-conventional monetary policy to stimulate the economy and raise prices.
References
More filters
Journal ArticleDOI
The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy
TL;DR: In this paper, the effect of the Federal Reserve's purchase of long-term Treasuries and other longterm bonds (QE1 in 2008-09 and QE2 in 2010-11) on interest rates was evaluated using an event-study methodology.
Book
The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases
TL;DR: In order to further ease the stance of monetary policy as the economic outlook deteriorated, the Federal Reserve purchased substan tial quantities of assets with medium and long maturities as discussed by the authors.
Posted Content
The Signaling Channel for Federal Reserve Bond Purchases
TL;DR: In this article, a model-free analysis and dynamic term structure models were used to decompose declines in yields following Fed announcements into changes in risk premia and expected short rates.
Posted Content
Unconventional monetary policy: lessons from the past three years
TL;DR: The Swiss National Bank Research Conference, Zurich, Switzerland, September 23, 2011 as mentioned in this paper, presented a paper on the Swiss Nationalbank Research Conference 2011, presented by Bernhard et al.
Posted Content
The signaling channel for Federal Reserve bond purchases
TL;DR: In this article, the authors investigated the portfolio balance effects of Federal Reserve bond purchases and found that such purchases have important signaling effects that lower expected future short-term interest rates, and characterized the uncertainty regarding the relative importance of the signaling and portfolio balance channels.