IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2012-37.html
   My bibliography  Save this paper

Term structure modelling with supply factors and the Federal Reserve's Large Scale Asset Purchase programs

Author

Abstract

This paper proposes and estimates an arbitrage-free term structure model with both observable yield factors and Treasury and Agency MBS supply factors, and applies it to evaluate the term premium effects of 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 have a combined effect of about 100 basis points on the 10-year Treasury yield.

Suggested Citation

  • Canlin Li & Min Wei, 2012. "Term structure modelling with supply factors and the Federal Reserve's Large Scale Asset Purchase programs," Finance and Economics Discussion Series 2012-37, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2012-37
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/2012/201237/201237abs.html
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/feds/2012/201237/201237pap.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    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.
    2. repec:fip:fedgsq:y:2011:i:feb25 is not listed on IDEAS
    3. Dimitri Vayanos & Jean‐Luc Vila, 2021. "A Preferred‐Habitat Model of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 89(1), pages 77-112, January.
    4. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233-267.
    5. Hess Chung & Jean‐Philippe Laforte & David Reifschneider & John C. Williams, 2012. "Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(s1), pages 47-82, February.
    6. 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.
    7. 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: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    8. Franco Modigliani & Richard Sutch, 1967. "Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 569-569.
    9. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(s1), pages 3-46, February.
    10. Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December.
    11. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    12. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
    13. Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May.
    14. Donald L. Kohn, 2009. "Monetary Policy in the Financial Crisis," Book Chapters, in: John D. Ciorciari & John Taylor (ed.), The Road Ahead for the Fed, chapter 4, Hoover Institution, Stanford University.
    15. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
    16. Kim, Don H. & Orphanides, Athanasios, 2012. "Term Structure Estimation with Survey Data on Interest Rate Forecasts," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(1), pages 241-272, February.
    17. Darrell Duffie & Rui Kan, 1996. "A Yield‐Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406, October.
    18. Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
    19. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
    20. Unknown, 2005. "Forward," 2005 Conference: Slovenia in the EU - Challenges for Agriculture, Food Science and Rural Affairs, November 10-11, 2005, Moravske Toplice, Slovenia 183804, Slovenian Association of Agricultural Economists (DAES).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Canlin Li & Min Wei, 2013. "Term Structure Modeling with Supply Factors and the Federal Reserve's Large-Scale Asset Purchase Progarms," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 3-39, March.
    2. 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.
    3. Sophocles N. Brissimis & Evangelia A. Georgiou, 2022. "The effects of Federal Reserve's quantitative easing and balance sheet normalization policies on long-term interest rates," Working Papers 299, Bank of Greece.
    4. Simon Gilchrist & Egon Zakrajšek, 2013. "The Impact of the Federal Reserve's Large‐Scale Asset Purchase Programs on Corporate Credit Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 29-57, December.
    5. Massimo Guidolin & Valentina Massagli & Manuela Pedio, 2021. "Does the cost of private debt respond to monetary policy? Heteroskedasticity-based identification in a model with regimes," The European Journal of Finance, Taylor & Francis Journals, vol. 27(18), pages 1804-1833, December.
    6. Guidolin, Massimo & Orlov, Alexei G. & Pedio, Manuela, 2017. "The impact of monetary policy on corporate bonds under regime shifts," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 176-202.
    7. Simon Gilchrist & David López-Salido & Egon Zakrajšek, 2015. "Monetary Policy and Real Borrowing Costs at the Zero Lower Bound," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 77-109, January.
    8. Michael E. Cahill & Stefania D'Amico & Canlin Li & John S. Sears, 2013. "Duration risk versus local supply channel in Treasury yields: evidence from the Federal Reserve's asset purchase announcements," Finance and Economics Discussion Series 2013-35, Board of Governors of the Federal Reserve System (U.S.).
    9. Goliński, Adam, 2021. "Monetary policy at the zero lower bound: Information in the Federal Reserve’s balance sheet," European Economic Review, Elsevier, vol. 131(C).
    10. King, Thomas B., 2019. "Expectation and duration at the effective lower bound," Journal of Financial Economics, Elsevier, vol. 134(3), pages 736-760.
    11. Jagjit S Chadha & Philip Turner & Fabrizio Zampolli, 2013. "The interest rate effects of government debt maturity," BIS Working Papers 415, Bank for International Settlements.
    12. Dimitri Vayanos & Jean‐Luc Vila, 2021. "A Preferred‐Habitat Model of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 89(1), pages 77-112, January.
    13. Eric M. Engen & Thomas Laubach & David L. Reifschneider, 2015. "The Macroeconomic Effects of the Federal Reserve's Unconventional Monetary Policies," Finance and Economics Discussion Series 2015-5, Board of Governors of the Federal Reserve System (U.S.).
    14. Blattner, Tobias Sebastian & Joyce, Michael A. S., 2016. "Net debt supply shocks in the euro area and the implications for QE," Working Paper Series 1957, European Central Bank.
    15. Stephanie Titzck & Jan Willem van den End, 2021. "The impact of size, composition and duration of the central bank balance sheet on inflation expectations and market prices," The European Journal of Finance, Taylor & Francis Journals, vol. 27(12), pages 1186-1209, August.
    16. Matteo Falagiarda, 2014. "Evaluating quantitative easing: a DSGE approach," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 7(4), pages 302-327.
    17. Janice C. Eberly & James H. Stock & Jonathan H. Wright, 2020. "The Federal Reserve's Current Framework for Monetary Policy: A Review and Assessment," International Journal of Central Banking, International Journal of Central Banking, vol. 16(1), pages 5-71, February.
    18. Maciej Stefański, 2021. "Macroeconomic Effects of Quantitative Easing Using Mid-sized Bayesian Vector Autoregressions," KAE Working Papers 2021-068, Warsaw School of Economics, Collegium of Economic Analysis.
    19. Mamaysky, Harry, 2018. "The time horizon of price responses to quantitative easing," Journal of Banking & Finance, Elsevier, vol. 90(C), pages 32-49.
    20. Swanson, Eric T., 2021. "Measuring the effects of federal reserve forward guidance and asset purchases on financial markets," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 32-53.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2012-37. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.