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

34 Pages Posted: 31 May 2017

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: 2014-03-24

Abstract

This paper estimates an arbitrage-free term structure model with both observable yield factors and Treasury and Agency MBS supply factors, and uses it to evaluate the term premium effects of the 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 jointly reduced the 10-year Treasury yield by about 100 basis points.

Keywords: No-arbitrage term structure models, Yield curve, Preferred habitat, Supply effects, Factor models, Large-scale asset purchases (LSAP), Agency mortgage-backed securities (MBS)

Suggested Citation

Li, Canlin and Wei, Min, Term Structure Modeling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs (2014-03-24). FEDS Working Paper No. 2014-7. Available at SSRN: https://ssrn.com/abstract=2976896

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

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