Central Bank Reserves and the Yield Curve at the ZLB

Item Type Monograph (Working Paper)
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.
Authors Mirkov, Nikola & Sutter, Barbara
Language English
Keywords Yield curve, zero lower bound, liquidity effect, reserves, Bayesian MCMC
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 2012
Publisher SoF
Place of Publication St. Gallen
Series Name SoF Working Paper Series
Number 2012/8
Depositing User Nikola Mirkov
Date Deposited 29 Apr 2013 11:36
Last Modified 27 Feb 2016 15:19
URI: https://www.alexandria.unisg.ch/publications/222514


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Mirkov, Nikola & Sutter, Barbara: Central Bank Reserves and the Yield Curve at the ZLB. SoF Working Paper Series, 2012, 2012/8.


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