The Effect of the U.S. Quantitative Easing on the Term Structure. A Spatial Panel Model Approach.

  1. José Carlos Vides González 1
  2. Almeida, Alejandro
  3. Antonio A. Golpe
  4. Juan Manuel Martin
  1. 1 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

Revista:
CZECH JOURNAL OF ECONOMICS AND FINANCE

ISSN: 2464-7683

Any de publicació: 2023

Volum: 73

Pàgines: 2-23

Tipus: Article

DOI: 10.32065/CJEF.2023.01.01 GOOGLE SCHOLAR lock_openAccés obert editor

Altres publicacions en: CZECH JOURNAL OF ECONOMICS AND FINANCE

Resum

In this paper, we apply the spatial panel model that accounts for serial dynamics, cross-sectional dependence, and common factors to assess interest rate sensitivity across the term structure to changes in the policy rate. Considering the Quantitative Easing (QE) program as a breakpoint, we apply this method before and after implementing this program. First, results suggest the existence of spillovers between different maturities. Second, after QE implementation, the impact of monetary policy is influencing more time the interest rates, that is, it will be more persistent, and the influence of Federal Funds rate on Treasury Constant rates has changed, although remaining the same pattern where short-term maturities are more sensitive than long-term ones. Finally, our findings may suggest that the Fed would possess more controllability of the term structure and a more efficient transmission mechanism. These results possess important considerations to policymakers and the effectiveness of the monetary policy applied by the Fed.

Referències bibliogràfiques

  • Abbassi P, Linzert T (2012): The Effectiveness of Monetary Policy in Steering Money Market Rates during the Financial Crisis. Journal of Macroeconomics, 34(4): 945-954.
  • Akram T (2021): A Note Concerning the Dynamics of Government Bond Yields. The American Economist, 66(2):323-339.
  • Akram T (2022): A Simple Model of the Long-Term Interest Rate. Journal of Post Keynesian Economics, 45(1):130-144.
  • Akram T, Li H (2016): The Empirics of Long-Term U.S. Interest Rates. Levy Economics Institute, Working Papers Series, (863).
  • Asgharian H, Hess W, Liu L (2013): A Spatial Analysis of International Stock Market Linkages. Journal of Banking & Finance, 37(12):4738–4754.
  • Atesoglu HS (2003): Monetary Transmission--Federal Funds Rate and Prime Rate. Journal of Post Keynesian Economics, 26(2):357-362.
  • Bailey N, Holly S, Pesaran MH (2016): A Two‐Stage Approach to Spatio‐Temporal Analysis with Strong and Weak Cross‐Sectional Dependence. Journal of Applied Econometrics, 31(1):249-280.
  • Bauer M, Rudebusch G (2014): The Signaling Channel for Federal Reserve Bond Purchases. International Journal of Central Banking, 10(3):233-289.
  • Beck N, Gleditsch KS, Beardsley K (2006): Space is More than Geography: Using Spatial Econometrics in the Study of Political Economy. International studies quarterly, 50(1):27–44.
  • Bernanke BS (2006): Reflections on the Yield Curve and Monetary Policy (No. 175).
  • Bernanke BS (2020): The New Tools of Monetary Policy. American Economic Review, 110(4):943-983.
  • Bu C, Rogers J, Wu W (2021): A Unified Measure of Fed Monetary Policy Shocks. Journal of Monetary Economics, 118:331-349.
  • Busch U, Nautz D (2010): Controllability and Persistence of Money Market Rates Along the Yield Curve: Evidence from the Euro Area. German Economic Review, 11(3):367-380.
  • Campbell JY (1995): Some Lessons from the Yield Curve. Journal of Economic perspectives, 9(3):129-152.
  • Campbell JY, Shiller RJ (1991): Yield Spreads and Interest Rate Movements: A Bird's Eye View. The Review of Economic Studies, 58(3):495-514.
  • Caporale GM, Carcel H, Gil-Alana L (2017): Central Bank Policy Rates: Are They Cointegrated? International Economics, 152:116–123.
  • Cassola N (2008): Structural Modeling of the Spread Between the Eonia Swap Rate and the Minimum Bid Rate of the Main Refinancing Operations of the Eurosystem. European Central Bank W.P. (2008).
  • Christensen JH (2018): The Slope of the Yield Curve and the Near-Term Outlook. FRBSF Economic Letter, 23:1–5.
  • Ciccarelli C, Elhorst JP (2018): A Dynamic Spatial Econometric Diffusion Model with Common Factors: The Rise and Spread of Cigarette Consumption in Italy. Regional Science and Urban Economics, 72, 131-142.
  • Cömert H (2012): Decoupling between the Federal Funds Rate and Long-Term Interest Rates: Decreasing Effectiveness of Monetary Policy in the U.S. No. wp295, Political Economy Research Center.
  • Dalhaus T, Schaumburg J, Sekhposyan T (2021): Networking the Yield Curve: Implications for Monetary Policy (No. 2532): European Central Bank.
  • Deleidi M, Levrero ES (2021): Monetary Policy and Long-Term Interest Rates: Evidence from the US Economy. Metroeconomica, 72(1):121–147.
  • Demiralp S, Jorda O (2004): The Response of Term Rates to Fed Announcements. Journal of Money, Credit and Banking, 387-405.
  • Elhorst JP (2010): Applied Spatial Econometrics: Raising the Bar. Spatial economic analysis, 5(1):9–28.
  • Elhorst JP (2014): Spatial Panel Data Models. In Spatial Econometrics (pp. 37-93), Springer, Berlin, Heidelberg.
  • Elhorst JP (2021): The Dynamic General Nesting Spatial Econometric Model for Spatial Panels with Common Factors: Further Raising the Bar. Review of Regional Research, pages 1–19.
  • Estrella A, Trubin M (2006): The Yield Curve as a Leading Indicator: Some Practical Issues. Current Issues in Economics and Finance, 12(5):1– 7.
  • Fernandez V (2011): Spatial Linkages in International Financial Markets. Quantitative Finance, 11(2):237–245.
  • Frees EW (1995): Assessing Cross-Sectional Correlation in Panel Data. Journal of econometrics, 69(2):393-414.
  • Fullana O, Ruiz J, Toscano D (2020): Stock Market Bubbles and Monetary Policy Effectiveness. The European Journal of Finance, 1-13.
  • Greenspan A (2005): Federal Reserve Board's Semiannual Monetary Policy Report to the Congress. Testimony: before the Committee on Banking, Housing, and Urban Affairs, U.S. senate, 21.
  • Guidolin M, Thornton DL (2018): Predictions of Short-Term Rates and the Expectations Hypothesis. International Journal of Forecasting, 34(4):636-664.
  • Gürkaynak RS, Wright JH (2012): Macroeconomics and the Term Structure. Journal of Economic Literature, 50(2):331-67.
  • Hassler U, Nautz D (2008): On the Persistence of the Eonia Spread. Economics Letters, 101(3):184-187.
  • Holmes MJ, Otero J, Panagiotidis T (2015): The Expectations Hypothesis and Decoupling of Short-and Long-Term U.S. Interest Rates: A Pairwise Approach. The North American Journal of Economics and Finance, 34:301-313.
  • King TB, Yu J (2018): How Have Banks Responded to Changes in the Yield Curve? Chicago Fed Letter, 406(1).
  • Kool CJ, Thornton DL (2012): How Effective is Central Bank Forward Guidance, Federal Reserve Bank of St. Louis, Working Paper N. 2012-063A.
  • Korniotis GM (2010): Estimating Panel Models with Internal and External Habit Formation. Journal of Business & Economic Statistics, 28(1):145– 158.
  • Kuttner KN (2001): Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market. Journal of Monetary Economics, 47(3):523-544.
  • Mankiw NG, Miron JA (1986): The Changing Behavior of the Term Structure of Interest Rates. The Quarterly Journal of Economics, 101(2):211-228.
  • Mishkin FS (2013): The Economics of Money, Banking, and Financial Markets (10th ed.): New York: Pearson Education.
  • Nguyen NT, Vu YH, Vu OT (2021): Assessing the Determinants of Interest Rate Transmission in Vietnam. In Data Science for Financial Econometrics (pp. 223- 244): Springer, Cham.
  • Nsafoah, D. (2021). Essays on Monetary Policy (Unpublished doctoral thesis). University of Calgary, AB. http://hdl.handle.net/1880/113329
  • Papadamou S, Siriopoulos C, Kyriazis NA (2020): A Survey of Empirical Findings on Unconventional Central Bank Policies. Journal of Economic Studies, 47(7):1533- 1577.
  • Parent O, LeSage JP (2010): A Spatial Dynamic Panel Model with Random Effects Applied to Commuting Times. Transportation Research Part B: Methodological, 44(5):633-645.
  • Parent O, LeSage JP (2011): A Space–Time Filter for Panel Data Models Containing Random Effects. Computational Statistics & Data Analysis, 55(1):475-490.
  • Rebucci A, Hartley JS, Jiménez D (2022): An event study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies. Emerald Publishing Limited.
  • Roley VV, Sellon GH (1995): Monetary Policy Actions and Long-Term Interest Rates. Federal Reserve Bank of Kansas City Economic Quarterly, 80(4):77-89.
  • Rudebusch GD (1995): Federal Reserve Interest Rate Targeting, Rational Expectations, and the Term Structure. Journal of Monetary Economics, 35(2):245- 274.
  • Rudebusch G (2018): A Review of the Fed’s Unconventional Monetary Policy. FRBSF Economic Letter, 27:1–5.
  • Rudebusch GD, Swanson ET, Wu T (2006): The Bond Yield "Conundrum" from a Macro-Finance Perspective. Monetary and Economic Studies, 24(S1):83-109.
  • Sarno L, Thornton DL, Valente G (2005): Federal Funds Rate Prediction. Journal of Money, Credit and Banking, 449-471.
  • Thornton DL (2005): Tests of the Expectations Hypothesis: Resolving the Anomalies when the Short-Term Rate is the Federal Funds Rate. Journal of Banking and Finance, 29(10):2541-2556.
  • Tobler WR (1970): A Computer Movie Simulating Urban Growth in the Detroit Region. Economic Geography, 46(sup1):234-240.
  • Vega SH, Elhorst JP (2016): A Regional Unemployment Model Simultaneously Accounting for Serial Dynamics, Spatial Dependence and Common Factors. Regional Science and Urban Economics, 60:85-95.
  • Vides JC, Golpe AA, Iglesias J (2019): The Role of Eonia in the Dynamics of ShortTerm Interbank Rates. Panoeconomicus, 67(2):225-240.
  • Vides JC, Golpe AA, Iglesias J (2020): The EHTS and the Persistence in the Spread Reconsidered. A Fractional Cointegration Approach. International Review of Economics and Finance, 69:124-137.
  • Williamson SD (2017): Quantitative Easing: How Well Does This Tool Work? The Regional Economist, 25(3):8-14.
  • Wright JH (2012): What Does Monetary Policy Do to Long‐Term Interest Rates at the Zero Lower Bound?. The Economic Journal, 122(564):F447-F466.
  • Yildirim Z, Ivrendi M (2021): Spillovers of U.S. Unconventional Monetary Policy: Quantitative Easing, Spreads, and International Financial Markets. Financial Innovation, 7(1):1–38.
  • Yu J, de Jong R, Lee LF (2012): Estimation for Spatial Dynamic Panel Data with Fixed Effects: The Case of Spatial Cointegration. Journal of Econometrics, 167(1):16-37.