The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under

The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under

ABSTRACT We study the recent Australian experience with yield curve control (YCC) as perhaps the best evidence of how this policy might work in other developed economies. YCC seemingly worked well in 2020, when the market expected short rates to stay at zero for a long period of time. As the global...

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Bibliographic Details
Published in:The Journal of finance (New York) Vol. 79; no. 2; pp. 1055 - 1085
Main Authors: LUCCA, DAVID O., WRIGHT, JONATHAN H.
Format: Journal Article
Language:English
Published: Cambridge Blackwell Publishers Inc 01-04-2024
Subjects:
Bonds
Central banks
Financial market
Government bonds
Inflation
Interest rates
Markets
Monetary policy
Public finance
Yield curve
Australia
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Summary:ABSTRACT We study the recent Australian experience with yield curve control (YCC) as perhaps the best evidence of how this policy might work in other developed economies. YCC seemingly worked well in 2020, when the market expected short rates to stay at zero for a long period of time. As the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the targeted government bond outstanding, and the target bond's yield dislocated from other financial market instruments. The evidence suggests that central bank bond purchase programs can operate more narrowly than previously considered.
Bibliography:David Lucca is with Jane Street. Jonathan Wright is with Johns Hopkins University. We thank the Editor Thomas Philippon; the anonymous Associate Editor; two anonymous referees; Ed Nelson; and seminar participants at Chicago Booth, the RBA, and the NBER monetary economics workshop for their helpful comments on previous versions. All errors are our sole responsibility. This paper was written while Lucca was an economist at the Federal Reserve Bank of New York. The views expressed here are the authors' and are not representative of the views of the Federal Reserve Bank of New York, the Federal Reserve System, or Jane Street. We have read
The Journal of Finance
disclosure policy and have no conflicts of interest to disclose.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.13307