Adam Golinski (University of York): Monetary policy at the zero lower bound: Information in the Federal Reserve's balance sheet
We examine the impact of the purchases of Treasury securities by the Federal Reserve on the Treasury bond yields. In the zero lower bound period the actual purchases of Treasury securities by the Federal Reserve are positively related to changes in the long maturity Treasury yields. This effect is driven primarily by the positive relation of the Treasury purchases with the bond risk premium, but they are also positively related with the expected inflation rate and the real rate of interest. These effects are strong and robust both in the monthly and the weekly data, and specific to the zero lower bound period. Since the Federal Reserve's purchases are also positively correlated with the cash flows to equity mutual funds and stock market returns, the evidence is consistent with the safety (and liquidity) channel hypothesis as put forward by Krishnamurthy and Vissing-Jorgensen (2011).
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