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The Effects of Quantitative Easing: Taking a Cue from Treasury Auctions

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  • Yuriy Gorodnichenko
  • Walker Ray

Abstract

To understand the effects of large-scale asset purchase programs recently implemented by central banks, we study how markets absorb large demand shocks for risk-free debt. Using high-frequency identification, we exploit the structure of the primary market for U.S. Treasuries to isolate demand shocks. These shocks are sizable, leading to large movements in Treasury yields and impacting corporate borrowing rates. Informed by a preferred habitat model of the term structure, we test for “local” demand effects and find evidence consistent with theoretical predictions. Crucially, this local effect is strongest when financial markets are disrupted. Our estimates are consistent with the view that quantitative easing worked mainly via market segmentation, with a potentially limited role for other channels.

Suggested Citation

  • Yuriy Gorodnichenko & Walker Ray, 2017. "The Effects of Quantitative Easing: Taking a Cue from Treasury Auctions," NBER Working Papers 24122, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24122
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    References listed on IDEAS

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    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
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    More about this item

    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

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