Are Unconventional Monetary Policies Effective?
AbstractThis paper evaluates the impact of unconventional and conventional monetary policies in the U.S. on the Libor-OIS spread, long-term interest rates and long-term inflation expectations. To this purpose we investigate the behavior of selected asset yields on the days of monetary policy announcements. We find that liquidity facilities other than TAF reduced the three-month Libor-OIS spread. The QE1 purchases of longer-term Treasury securities and agency debt/MBS lowered long-term interest rates. Furthermore, we find evidence that the Fed's rescue operations and QE2 raised long-term inflation expectations. Our results show that QE1 and QE2 had different effects: QE1 reduced long-term interest rates without raising inflation expectations, whereas QE2 raised inflation expectations and did not lower long-term interest rates. We also consider the impact of fiscal policy announcements. We find that the government bailouts reduced the three-month Libor-OIS spread while the fiscal stimulus announcements raised long-term inflation expectations.
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Bibliographic InfoPaper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CELEG with number 1107.
Date of creation: 2011
Date of revision:
unconventional monetary policy; inflation expectations; long-term interest rates; Libor-OIS spread; announcements effect.;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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