Term Structure Modelling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs

34 Pages Posted: 19 Dec 2012

See all articles by Canlin Li

Canlin Li

Board of Governors of the Federal Reserve System

Min Wei

Board of Governors of the Federal Reserve - Division of Monetary Affairs

Date Written: May 30, 2012

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.

Keywords: Yield curve, preferred habitat, supply effects, factor models, state-space models, large-scale asset purchases (LSAP)

JEL Classification: G1, E4, C5

Suggested Citation

Li, Canlin and Wei, Min, Term Structure Modelling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs (May 30, 2012). FEDS Working Paper No. 2012-37. Available at SSRN: https://ssrn.com/abstract=2191189 or http://dx.doi.org/10.2139/ssrn.2191189

Canlin Li (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2227 (Phone)

Min Wei

Board of Governors of the Federal Reserve - Division of Monetary Affairs ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
36
Abstract Views
368
PlumX Metrics