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Quantitative Easing and Long-Term Yields in Small Open Economies

Author

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  • Antonio Diez de los Rios
  • Maral Shamloo
Abstract
We compare the effectiveness of Federal Reserve's asset purchase programs in lowering longterm yields with that of similar programs implemented by the Bank of England, the Swedish Riksbank, and the Swiss National Bank's reserve expansion program. We decompose government bond yields into (i) an expectations component, (ii) a global, and (iii) a country specific term premium to analyze two-day changes in 10-year yields around announcement dates. We find that, in contrast to the Federal Reserve's asset purchases, the programs implemented in these smaller economies have not been able to affect the global term premium and, furthermore, they have had limited, but significant, effect in lowering long-term yields.

Suggested Citation

  • Antonio Diez de los Rios & Maral Shamloo, 2017. "Quantitative Easing and Long-Term Yields in Small Open Economies," IMF Working Papers 2017/212, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/212
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    Cited by:

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    3. Fabian Schär, 2021. "Decentralized Finance: On Blockchain- and Smart Contract-Based Financial Markets," Review, Federal Reserve Bank of St. Louis, vol. 103(2), pages 153-174, April.
    4. Brubakk, Leif & ter Ellen, Saskia & Robstad, Ørjan & Xu, Hong, 2022. "The macroeconomic effects of forward communication," Journal of International Money and Finance, Elsevier, vol. 120(C).
    5. Grahame Johnson & Sharon Kozicki & Romanos Priftis & Lena Suchanek & Jonathan Witmer & Jing Yang, 2020. "Implementation and Effectiveness of Extended Monetary Policy Tools: Lessons from the Literature," Discussion Papers 2020-16, Bank of Canada.
    6. Evan Karson & Christopher J. Neely, 2021. "More Stories of Unconventional Monetary Policy," Review, Federal Reserve Bank of St. Louis, vol. 103(2), pages 207-270, April.
    7. Lakdawala, Aeimit & Moreland, Timothy & Schaffer, Matthew, 2021. "The international spillover effects of US monetary policy uncertainty," Journal of International Economics, Elsevier, vol. 133(C).
    8. Petter Eilif de Lange & Morten Risstad & Kristian Semmen & Sjur Westgaard, 2023. "Term Premia in Norwegian Interest Rate Swaps," JRFM, MDPI, vol. 16(3), pages 1-19, March.
    9. Maria E. Canon & Limor Golan & Cody A. Smith, 2021. "Understanding the Gender Earnings Gap: Hours Worked, Occupational Sorting, and Labor Market Experience," Review, Federal Reserve Bank of St. Louis, vol. 103(2), pages 175-205, April.
    10. Malliaropulos, Dimitris & Migiakis, Petros, 2023. "A global monetary policy factor in sovereign bond yields," Journal of Empirical Finance, Elsevier, vol. 70(C), pages 445-465.
    11. Yang Zhang & Lena Suchanek & Jonathan Swarbrick & Joel Wagner & Tudor Schlanger, 2021. "Sequencing Extended Monetary Policies at the Effective Lower Bound," Discussion Papers 2021-10, Bank of Canada.
    12. Stefania D'Amico & Tim Seida, 2020. "Unexpected Supply Effects of Quantitative Easing and Tightening," Working Paper Series WP-2020-17, Federal Reserve Bank of Chicago.
    13. Itay Goldstein & Jonathan Witmer & Jing Yang, 2018. "Following the Money: Evidence for the Portfolio Balance Channel of Quantitative Easing," Staff Working Papers 18-33, Bank of Canada.
    14. Stephanie E. Curcuru & Steven B. Kamin & Canlin Li & Marius del Giudice Rodriguez, 2018. "International Spillovers of Monetary Policy : Conventional Policy vs. Quantitative Easing," International Finance Discussion Papers 1234, Board of Governors of the Federal Reserve System (U.S.).
    15. Sarah Drought & Roger Perry & Adam Richardson, 2018. "Aspects of implementing unconventional monetary policy in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 81, pages 1-22, May.
    16. An, Sungbae & Kim, Hyosang & Kim, Seung-Hyun & Yang, Da Young & Lee, Jinhee & Cho, Ko Un & Kim, Wongi & Kim, Jinill, 2021. "포스트 코로나 시대 주요국의 통화·재정정책 방향과 시사점(hanges, Challenges and Implications of Fiscal and Monetary Policy Directions in the Post Pandemic Era)," Policy Analyses 21-15, Korea Institute for International Economic Policy.
    17. Bruno Feunou & Rodrigo Sekkel & Morvan Nongni Donfack, 2018. "Does US or Canadian Macro News Drive Canadian Bond Yields?," Staff Analytical Notes 2018-38, Bank of Canada.
    18. Violeta A. Gutkowski, 2021. "Lockdown Responses to COVID-19," Review, Federal Reserve Bank of St. Louis, vol. 103(2), pages 127-151, April.
    19. Vijay Kumar & Sanjeev Acharya & Ly T. H. Ho, 2020. "Does Monetary Policy Influence the Profitability of Banks in New Zealand?," IJFS, MDPI, vol. 8(2), pages 1-17, June.

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    More about this item

    Keywords

    WP; yield; asset purchase; expected return; Unconventional monetary policy; event study; signaling; portfolio balance; asset purchases; purchase announcement; long-term yield; purchase program; QE asset purchase; QE program; Riksbank asset purchase announcement; asset purchase announcement; BoE Monetary Policy Commitee; fed funds rate; zero-coupon bond; Yield curve; Unconventional monetary policies; Bonds; Sovereign bonds; Long term interest rates; Global;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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