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Managing the Treasury Yield Curve in the 1940s

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  • Kenneth D. Garbade

Abstract

This paper examines the efforts of the Federal Open Market Committee (FOMC) to first control, and later decontrol, the level and shape of the Treasury yield curve in the 1940s. The paper begins with a brief review of monetary policy in 1938 and a description of the period between September 1939 and December 1941, when the idea of maintaining a fixed yield curve first appeared. It then discusses the financing of U.S. participation in World War II and the experience with maintaining a fixed curve. The paper concludes with a discussion of how the FOMC regained control of monetary policy in the second half of the 1940s. The Committee’s efforts offer two lessons in yield curve management: (1) the shape of the curve cannot be fixed independently of the volatility of interest rates and debt management policies, and (2) large-scale open market operations may be required in the course of refixing, from time to time, the shape of the yield curve.

Suggested Citation

  • Kenneth D. Garbade, 2020. "Managing the Treasury Yield Curve in the 1940s," Staff Reports 913, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:87456
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    References listed on IDEAS

    as
    1. Garbade, Kenneth D., 2012. "Birth of a Market: The U.S. Treasury Securities Market from the Great War to the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016370, December.
    2. repec:ucp:bkecon:9780226519999 is not listed on IDEAS
    3. Toma, Mark, 1992. "Interest Rate Controls: The United States in the 1940s," The Journal of Economic History, Cambridge University Press, vol. 52(3), pages 631-650, September.
    4. Wicker, Elmus R, 1969. "The World War II Policy of Fixing a Pattern of Interest Rates," Journal of Finance, American Finance Association, vol. 24(3), pages 447-458, June.
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    Cited by:

    1. David O. Lucca & Jonathan H. Wright, 2024. "The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under," Journal of Finance, American Finance Association, vol. 79(2), pages 1055-1085, April.
    2. Bordo, Michael D. & Haubrich, Joseph G., 2024. "Low interest rates and the predictive content of the yield curve," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    3. David Andolfatto & Fernando Martin, 2023. "Welfare-enhancing inflation and liquidity premia," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 1036-1047, December.

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    More about this item

    Keywords

    yield curve management; open market operations; debt management;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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