Term Structure Modeling with Supply Factors and the Federal Reserve's Large Scale Asset Purchase Programs
34 Pages Posted: 31 May 2017
Date Written: 2014-03-24
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)
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