The Interest Rate Effects of Government Bond Purchases Away from the Lower Bound

Riksbank Research Paper Series No. 148

Sveriges Riksbank Working Paper Series No. 324

43 Pages Posted: 23 May 2016

Date Written: May 2016


I analyze the recent experience of unconventional monetary policy in Sweden to study the interest rate transmission mechanisms of government bond purchases when interest rates are not constrained by a lower bound. Using dynamic term structure models and event study regressions I find that government bond purchases have important portfolio balance and signaling effects. The signaling channel operates mainly by lowering short-rate expectations in the intermediate segment of the yield curve, while the portfolio balance channel is effective in lowering longer maturity term premia. In addition, I find that target interest rate policy and government bond purchases operate in different segments of the yield curve. This suggests that a combination of the two policies can be used to lower interest rates across the whole maturity spectrum, making monetary policy more expansionary.

Keywords: quantitative easing, signaling channel, portfolio balance channel, yield curve, dynamic affine term structure models, short rate expectations, term premium

JEL Classification: E43, E44, E52

Suggested Citation

de Rezende, Rafael Barros, The Interest Rate Effects of Government Bond Purchases Away from the Lower Bound (May 2016). Riksbank Research Paper Series No. 148. Available at SSRN: or

Rafael Barros De Rezende (Contact Author)

Stockholm School of Economics ( email )

Sveavägen 65, Stockholm (6th floor)
Box 6501 SE-113 83
Stockholm, SE-113 83

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