What Does Monetary Policy Do to Long-Term Interest Rates at the Zero Lower Bound?
37 Pages Posted: 20 Jun 2011 Last revised: 15 Nov 2024
Date Written: June 2011
Abstract
The federal funds rate has been stuck at the zero bound for over two years and the Fed has turned to unconventional monetary policies, such as large scale asset purchases to provide stimulus to the economy. This paper uses a structural VAR with daily data to identify the effects of monetary policy shocks on various longer-term interest rates during this period. The VAR is identified using the assumption that monetary policy shocks are heteroskedastic: monetary policy shocks have especially high variance on days of FOMC meetings and certain speeches, while there is nothing unusual about these days from the perspective of any other shocks to the economy. A complementary high-frequency event-study approach is also used. I find that stimulative monetary policy shocks lower Treasury and corporate bond yields, but the effects die off fairly fast, with an estimated half-life of about two months.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Preferred-Habitat Model of the Term Structure of Interest Rates
By Dimitri Vayanos and Jean-luc Vila
-
A Preferred-Habitat Model of the Term Structure of Interest Rates
By Dimitri Vayanos and Jean-luc Vila
-
A Preferred-Habitat Model of the Term Structure of Interest Rates
By Dimitri Vayanos and Jean-luc Vila
-
Large-Scale Asset Purchases by the Federal Reserve: Did They Work?
By Joseph Gagnon, Matthew Raskin, ...
-
Large-Scale Asset Purchases by the Federal Reserve: Did They Work?
By Joseph Gagnon, Matthew Raskin, ...