The Effectiveness of the Federal Reserve’s Maturity Extension Program – Operation Twist 2: The Portfolio Rebalancing Channel and Public Debt Management
11 Pages Posted: 20 Jun 2012
Date Written: May 1, 2012
This paper provides a first assessment of the Federal Reserve’s recent Maturity Extension Program, dubbed Operation Twist 2. Despite the mere exchange of short-term for long-term Treasury securities, the announcement effect is comparable to the second Large Scale Asset Purchase programme (LSAP2). The portfolio rebalancing channel, however, is countervailed by the issuance of even more Treasury coupon securities, which may explain the temporary nature of the observed interest rate effects. In the extreme, Operation Twist 2 and LSAP2 can be viewed as just offsetting the adverse impact of the pronounced increase in outstanding government securities.
Full publication: Threat of fiscal dominance?
Keywords: Operation Twist, large scale asset purchase programme, portfolio rebalancing effect, fiscal and monetary policy interaction
JEL Classification: E43, E52, E58, E63
Suggested Citation: Suggested Citation