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The Original Operation Twist: The War Finance Corporation's War Bond Purchase, 1918-1920

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Author Info

  • James L. Butkiewicz

    ()
    (Department of Economics, University of Delaware)

  • Mihaela Solcan

    ()
    (Department of Economics, University of Delaware)

Abstract

In 1918 the United States Treasury delegated to the War Finance Corporation, a newly-created off-budget federal agency, the task of buying Liberty and later victory bonds in an effort to stabilize prices. Bayesian vector autoregression analysis of the bond purchase indicate that the WFC purchase provided significant price support, and lowered bond yields while the program operated. Once WFC purchase ended, war bond yields increased substantially. However, since the war bond purchases were financed by the sale of short-term debt certificates, the bond purchases increased short rates while reducing long rates. The WFC’s bond purchases twisted the yield curve.

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File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2012/UDWF-2012-13.pdf
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Bibliographic Info

Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 12-13.

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Length: 44 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:dlw:wpaper:12-13.

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Keywords: E43; N12; M22; N42; G12;

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  1. Sung Won Kang & Hugh Rockoff, 2006. "Capitalizing Patriotism: The Liberty Loans of World War I," NBER Working Papers 11919, National Bureau of Economic Research, Inc.
  2. Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," Working Paper 95-6, Federal Reserve Bank of Atlanta.
  3. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
  4. Sims, Christopher A & Zha, Tao, 1998. "Bayesian Methods for Dynamic Multivariate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 949-68, November.
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Cited by:
  1. James L. Butkiewicz, 2013. "Eugene Meyer and the German Influence on the Origin of U.S. Federal Financial Rescues," Working Papers 13-09, University of Delaware, Department of Economics.

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