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

Author

Listed:
  • 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.

Suggested Citation

  • James L. Butkiewicz & Mihaela Solcan, 2012. "The Original Operation Twist: The War Finance Corporation's War Bond Purchase, 1918-1920," Working Papers 12-13, University of Delaware, Department of Economics.
  • Handle: RePEc:dlw:wpaper:12-13.
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    References listed on IDEAS

    as
    1. Stefania D’Amico & William English & David López‐Salido & Edward Nelson, 2012. "The Federal Reserve's Large‐scale Asset Purchase Programmes: Rationale and Effects," Economic Journal, Royal Economic Society, vol. 122(564), pages 415-446, November.
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    Cited by:

    1. Butkiewicz, James, 2015. "Eugene Meyer And The German Influence On The Origin Of Us Federal Financial Rescues," Journal of the History of Economic Thought, Cambridge University Press, vol. 37(01), pages 57-77, March.
    2. Torres, Ernani & Zeidan, Rodrigo, 2016. "The life-cycle of national development banks: The experience of Brazil's BNDES," The Quarterly Review of Economics and Finance, Elsevier, vol. 62(C), pages 97-104.

    More about this item

    Keywords

    E43; N12; M22; N42; G12;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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