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The Signaling Channel for Federal Reserve Bond Purchases
TLDR
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.Abstract:
Previous research has emphasized the portfolio balance effects of Federal Reserve bond purchases, in which a reduced bond supply lowers term premia. In contrast, we find that such purchases have important signaling effects that lower expected future short-term interest rates. Our evidence comes from a model-free analysis and from dynamic term structure models that decompose declines in yields following Fed announcements into changes in risk premia and expected short rates. To overcome problems in measuring term premia, we consider bias-corrected model estimation and restricted risk price estimation. In comparison with other studies, our estimates of signaling effects are larger in magnitude and statistical significance.read more
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Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound
TL;DR: This paper employed an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates, which can be used to summarize the macroeconomic effects of unconventional monetary policy.
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The forward guidance puzzle
TL;DR: In this paper, the authors explain why this is the case and describe one approach to addressing this issue. But they also point out that standard medium-scale DSGE models tend to grossly overestimate the impact of forward guidance on the macroeconomy.
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The Response of Interest Rates to US and UK Quantitative Easing
TL;DR: The authors decompose US and UK yields into expectations about future short-term interest rates and term premiums and find that declines in US yields mainly reflected lower expectations of future short term interest rates, while declines in UK yields appeared to reflect reduced term premiums.
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Evaluating the impact of unconventional monetary policy measures: Empirical evidence from the ECB׳s Securities Markets Programme ☆
Fabian Eser,Bernd Schwaab +1 more
TL;DR: In this paper, the authors assess the yield impact of asset purchases within the European Central Bank's (ECB) Securities Markets Programme (SMP) in five euro area sovereign bond markets from 2010-11.
References
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Markov Chain Monte Carlo Convergence Diagnostics: A Comparative Review
TL;DR: All of the methods in this work can fail to detect the sorts of convergence failure that they were designed to identify, so a combination of strategies aimed at evaluating and accelerating MCMC sampler convergence are recommended.
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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.
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Bayesian Model Choice Via Markov Chain Monte Carlo Methods
TL;DR: This paper presents a framework for Bayesian model choice, along with an MCMC algorithm that does not suffer from convergence difficulties, and applies equally well to problems where only one model is contemplated but its proper size is not known at the outset.
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Small-sample Confidence Intervals for Impulse Response Functions
Abstract: Bias-corrected bootstrap confidence intervals explicitly account for the bias and skewness of the small-sample distribution of the impulse response estimator, while retaining asymptotic validity in stationary autoregressions. Monte Carlo simulations for a wide range of bivariate models show that in small samples bias-corrected bootstrap intervals tend to be more accurate than delta method intervals, standard bootstrap intervals, and Monte Carlo integration intervals. This conclusion holds for VAR models estimated in levels, as deviations from a linear time trend, and in first differences. It also holds for random walk processes and cointegrated processes estimated in levels. An empirical example shows that bias-corrected bootstrap intervals may imply economic interpretations of the data that are substantively different from standard methods.
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.