tailieunhanh - Long-term Interest Rates, Risk Premia and Unconventional Monetary Policy

Furthermore, debt management policies can be all the more effective in the special case of the zero lower bound (ZLB). This is because policies aimed at shortening the duration of debt held by the public (ie selling Treasury bills and buying government bonds) may lower long-term yields without raising short-term yields, which are glued close to zero at the ZLB. But note that the corollary of the ZLB argument on its own is a policy asymmetry. Central banks may need to buy government bonds when at the ZLB if they want to stimulate demand. But they have no need to. | Reserve Bank of Australia RESEARCH DISCUSSION PAPER Long-term Interest Rates Risk Premia and Unconventional Monetary Policy Callum Jones and Mariano Kulish RDP 2011-02 LONG-TERM INTEREST RATES RISK PREMIA AND UNCONVENTIONAL MONETARY POLICY Callum Jones and Mariano Kulish Research Discussion Paper 2011-02 April 2011 Economic Research Department Reserve Bank of Australia We thank Adam Cagliarini Richard Finlay Jonathan Kearns Philip Lowe Michael Plumb and Ken West for useful discussions. The views expressed here are our own and do not necessarily reflect those of the Reserve Bank of Australia. Authors jonesc and kulishm at domain Media Office rbainfo@ Abstract In a model where the risk premium on long-term debt is in part endogenously determined we study two kinds of unconventional monetary policy longterm nominal interest rates as operating instruments of monetary policy and announcements about the future path of the short-term rate. We find that both policies are consistent with unique equilibria that long-term interest rate rules can perform better than conventional Taylor rules and that at the zero lower bound announcements about the future path of the short-term rate can lower long-term interest rates through their impact on both expectations and the risk premium. With simulations we show that long-term interest rate rules generate sensible dynamics both when in operation and when expected to be applied. JEL Classification Numbers E43 E52 E58 Keywords unconventional monetary policy Taylor rule risk premia term structure