IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Central Bank Reserves and the Yield Curve at the ZLB

Author Info

Listed author(s):
  • Mirkov, Nikola

    ()

  • Sutter, Barbara

    ()

Abstract

With short term interest rates bounded at zero, monetary policy has aimed at affecting the yield curve at the longer end during the recent years. As the recent literature has shown, the quantitative easing programs conducted by the Federal reserve have significantly lowered long-term yields. This paper adds central bank reserves as a fourth factor to an affine term structure model to estimate the effect of quantitative easing on the yield curve. The cumulative effect on 10-year Treasury securities during the zero lower bound period is estimated to amount to 85 basis points. Of the total effect, one quarter is shown to be due to the liquidity effect and three quarters to the supply effect. To disentangle the two effects, the estimates for the US are compared to estimates for Swiss data because the Swiss national bank did not engage in any government bond purchases.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1208.pdf
Download Restriction: no

Paper provided by University of St. Gallen, School of Finance in its series Working Papers on Finance with number 1208.

as
in new window

Length: 43 pages
Date of creation: Oct 2012
Handle: RePEc:usg:sfwpfi:2012:08
Contact details of provider: Phone: +41 71 243 40 11
Fax: +41 71 243 40 40
Web page: http://www.unisg.ch/de/universitaet/schools/finance

More information through EDIRC

Keywords: Yield curve; zero lower bound; liquidity effect; reserves; Bayesian MCMC.;

Find related papers by JEL classification:

  • 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
  • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Jardet, Caroline & Monfort, Alain & Pegoraro, Fulvio, 2013. "No-arbitrage Near-Cointegrated VAR(p) term structure models, term premia and GDP growth," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 389-402.
  2. Giese, Julia V., 2008. "Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-20.
  3. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
  4. Signe Krogstrup & Samuel Reynard & Barbara Sutter, 2012. "Liquidity Effects of Quantitative Easing on Long-Term Interest Rates," Working Papers 2012-02, Swiss National Bank.
  5. Jordan, Bradford D & Jordan, Susan D, 1997. " Special Repo Rates: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 52(5), pages 2051-2072, December.
  6. Andrew Ang & Sen Dong & Monika Piazzesi, 2005. "No-arbitrage Taylor rules," Proceedings, Federal Reserve Bank of San Francisco.
  7. Monika Piazzesi & John Cochrane, 2009. "Decomposing the Yield Curve," 2009 Meeting Papers 18, Society for Economic Dynamics.
  8. Hamilton, James D. & Wu, Jing Cynthia, 2012. "Identification and estimation of Gaussian affine term structure models," Journal of Econometrics, Elsevier, vol. 168(2), pages 315-331.
  9. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
  10. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  11. Favero, Carlo A. & Niu, Linlin & Sala, Luca, 2007. "Term Structure Forecasting: No-Arbitrage Restrictions vs Large Information Set," CEPR Discussion Papers 6206, C.E.P.R. Discussion Papers.
  12. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
  13. Michael D. Bauer, 2011. "Term premia and the news," Working Paper Series 2011-03, Federal Reserve Bank of San Francisco.
Full references (including those not matched with items on IDEAS)

The CitEc project has not yet found citations to this item.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:usg:sfwpfi:2012:08. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geraldine Frei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.