Does Quantitative Easing Lower the Long-Term Interest Rates?
12 Pages Posted: 30 Sep 2019
Date Written: September 19, 2019
There is a consensus that during the Great Recession period quantitative easing puts downward pressure on long-term interest rates. Using quarterly data and vector autoregressive model this note provides empirical evidence that quantitative easing, measured by changes in monetary base as a percentage of gross domestic product, instead, positively affects the U.S. 10-year government bond yield. One possible explanation for this is that increasing the size of the Federal Reserve balance sheets raises optimism about the macroeconomy.
Keywords: Bond Interest Rates; Monetary Policy; QE
JEL Classification: E43; E52; G12
Suggested Citation: Suggested Citation