WB03/2023: SEACEN-ASB Online Seminar: Narrow Channel of Quantitative Easing

Venue :Online Seminars
Host Name :The SEACEN Centre
Date From :27 Jan 2023
Date To :27 Jan 2023


Speaker: Jonathan Wright, Professor at Johns Hopkins University
Date and Time: Friday, 27th january 2023 at 10am KL

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

Abstract: The paper studies the recent Australian experience with yield curve control (YCC) of government bonds as perhaps the best evidence of how this policy might work in other developed economies. Jonathan interprets the evidence with a simple model in which YCC affects prices of both government and other bonds via “broad” transmission channels, but only government bond prices through “narrow” liquidity channels. While YCC seemingly worked well in 2020 while the market expected short rates to stay at zero for long, as the global recovery and inflation gained momentum in 2021, the Reserve Bank of Australia purchased most of the outstanding amount of the targeted government bond, and its yield dislocated from other financial market instruments. The model and empirical evidence point to narrow transmission channels playing more prominent roles than broad channels considered in prior studies of quantitative easing (QE), such as portfolio balance effects and signaling about short term rates. We argue that asset-specific narrow channels may be primary transmission mechanisms of quantity-based QE policies as well.

Link to paper: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1013.pdf