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Yield curve control

Author

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  • Kortelainen, Mika

Abstract

We study the yield curve control in Eurozone. We apply Chen, Cúrdia and Ferrero (2012) model that uses a financial friction to break Wallace's neutrality. We calibrate a bond supply shock that corresponds to the observed change in the time premium in euro area when the APP program was introduced. With some model simulations, we show that the effectiveness of both unconventional monetary policy and fiscal policy are enhanced, when the yield curve control is applied. Thus, we find that the yield curve control can be an effective tool, if applied in a credible manner for a long enough time period during an effective lower bound episode.

Suggested Citation

  • Kortelainen, Mika, 2020. "Yield curve control," BoF Economics Review 5/2020, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:52020
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    More about this item

    Keywords

    Yield curve control; monetary policy; fiscal policy; efficient lower bound; liquidity trap;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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