The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under |
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| Authors: | DAVID O LUCCA JONATHAN H WRIGHT |
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| Institution: | 1. David Lucca is with Jane Street. Jonathan Wright is with Johns Hopkins University. We thank the Editor Thomas Philippon;2. the anonymous Associate Editor;3. two anonymous referees;4. Ed Nelson;5. 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. |
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| 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. |
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