Yield Curve Control

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Title: Yield Curve Control
Author: Kortelanen, Mika
Organization: Bank of Finland
Series: BoF Economics Review
Series year: 2020
Series number: 5/2020
Year of publication: 2020
Publication date: 28.5.2020
Pages: 22
Subject (yso): rahapolitiikka; finanssipolitiikka; euroalue; korko
Keywords: tuottokäyrä; likviditeetti; korkokäyrä; mallit
JEL: E52; E58
Other keywords: yield curve control; monetary policy; fiscal policy; efficient lower bound; liquidity trap
Abstract: We study the yield curve control in Eurozone. We apply Chen, Cúrdia and Ferrero (2012) model that uses a financial friction to break Wallace’s neutrality. We calibrate a bond supply shock that corresponds to the observed change in the time premium in euro area when the APP program was introduced. With some model simulations, we show that the effectiveness of both unconventional monetary policy and fiscal policy are enhanced, when the yield curve control is applied. Thus, we find that the yield curve control can be an effective tool, if applied in a credible manner for a long enough time period during an effective lower bound episode.
Rights: https://helda.helsinki.fi/bof/copyright


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