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Transmission of Quantitative Easing: The Role of Central Bank Reserves

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  • Jens H E Christensen
  • Signe Krogstrup

Abstract

This article presents empirical evidence of a reserve-induced transmission channel of quantitative easing to long-term interest rates. Reserve-induced effects are independent of the assets purchased and run through the impact of reserve expansions on bank balance sheets and the resulting bank portfolio rebalancing. For evidence, we analyse the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities. The data suggest that declines in long-term yields following the announcements mainly reflected reduced term premiums, consistent with reserve-induced portfolio balance effects.

Suggested Citation

  • Jens H E Christensen & Signe Krogstrup, 2019. "Transmission of Quantitative Easing: The Role of Central Bank Reserves," The Economic Journal, Royal Economic Society, vol. 129(617), pages 249-272.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:617:p:249-272.
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    File URL: http://hdl.handle.net/10.1111/ecoj.12600
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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
    • 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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