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Term Structure Modeling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs

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Abstract

This paper estimates an arbitrage-free term structure model with both observable yield factors and Treasury and Agency MBS supply factors, and uses it to evaluate the term premium effects of the Federal Reserve's large-scale asset purchase programs. Our estimates show that the first and the second large-scale asset purchase programs and the maturity extension program jointly reduced the 10-year Treasury yield by about 100 basis points.

Suggested Citation

  • Canlin Li & Min Wei, 2014. "Term Structure Modeling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs," Finance and Economics Discussion Series 2014-07, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2014-07
    Note: This paper is a revised version of FEDS Working Paper 2012-37
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    More about this item

    Keywords

    No-arbitrage term structure models; Yield curve; Preferred habitat; Supply effects; Factor models; large-scale asset purchases; Agency mortgage-backed securities (MBS);
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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