AN EVENT STUDY ANALYSIS OF THE EFFECTS OF QUANTITATIVE EASING ON LONG-TERM ASSET YIELDS

Abstract

Since the end of 2008, as a result of reducing the target federal funds rate to the zero lower bound, the Federal Reserve has had to resort to unconventional monetary policy, also known as quantitative easing, in order to further stimulate a deteriorating economy. The Federal Reserve has engaged in large-scale purchases of medium- and long-term assets with the intention of reducing long-term asset yields. In this paper, I explain how these purchases were implemented and discuss the monetary transmission mechanisms through which they might have impacted the economy. Examining how effective the Federal Reserve’s quantitative easing programs have impacted these yields, I present evidence that the large-scale asset purchases were successful in reducing longterm yields on a range of securities. I use an event study approach with varying window sizes to examine the asset yield changes immediately after a quantitative easing announcement was made. In doing so, I show that although the full effects on the longterm assets cannot be seen immediately, they are in fact significant and long-lasting.