The signaling channel for Federal Reserve bond purchases
AbstractPrevious 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 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 unbiased model estimation and restricted risk price estimation. We also characterize the estimation uncertainty regarding the relative importance of the signaling and portfolio balance channels.
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Bibliographic InfoPaper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2011-21.
Date of creation: 2011
Date of revision:
Other versions of this item:
- Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-09 (All new papers)
- NEP-CBA-2011-10-09 (Central Banking)
- NEP-MAC-2011-10-09 (Macroeconomics)
- NEP-MON-2011-10-09 (Monetary Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Quel est lâefficacitÃ© de lâassouplissement quantitatif ?
by ? in D'un champ l'autre on 2014-05-01 12:19:00
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