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

Author

Listed:
  • Li, Canlin

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Wei, Min

    () (Board of Governors of the Federal Reserve System (U.S.))

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

  • Li, Canlin & Wei, Min, 2014. "Term Structure Modeling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs," Finance and Economics Discussion Series 2014-7, Board of Governors of the Federal Reserve System (US).
    • Handle: RePEc:fip:fedgfe:2014-07
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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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    5. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 215-287.
    6. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters,in: Theory Of Valuation, chapter 5, pages 129-164 World Scientific Publishing Co. Pte. Ltd..
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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 (LSAP); Agency mortgage-backed securities (MBS);

    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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