Transmission of Quantitative Easing: The Role of Central Bank Reserves

July 1, 2015
Issue 2015-06

Summary

We argue that the issuance of central bank reserves per se can matter for the effectof central bank large-scale asset purchases-commonly known as quantitative easing- on long-term interest rates. This effect is independent of the assets purchased, and runs through a reserve-induced portfolio balance channel. For evidence we analyze the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities. We find that declines in long-term yields following the announcements mainly reflected reduced term premiums suggestive of reserve-induced portfolio balance effects.

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Issue:
06
Pages:
60
JEL classification:
G12, E43, E52, E58
Keywords:
Unconventional monetary policy, reserve-induced portfolio balance channel, term structure modeling
Year:
2015

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Author(s)

  • Jens H. E. Christensen

  • Signe Krogstrup

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