This paper estimates the impact of the Federal Reserve's 2008-2011 quantitative easing (QE) program on the U.S. term structure of interest rates. Different from other studies, we estimate an arbitrage-free term structure model that explicitly includes the quantity impact of the Fed's trades on...

Unconventional monetary policy tools are based on the belief that there exists a zero-lower bound on interest rates. This paper argues, based on economic theory and the empirical evidence, that this belief is a myth and not a reality. It is shown that a negative default-free spot rate of...

This article reviews the forward rate curve smoothing literature. The key contribution of this review is to link the static curve fitting exercise to the dynamic and arbitrage-free models of the term structure of interest rates. As such, this review introduces more economics to an almost...

This paper constructs a simple yet robust model of financial crises and economic growth where financial markets affect real economic activity. Financial markets increase real output by facilitating investment through the borrowing/lending of capital. However, the borrowing of capital is risky...

Many monetary studies on the portfolio balance effect omit its impact to equity returns. Motivated through a simple general equilibrium model, we study how changes in the bond supply affect the overall equity market. Our model predicts that exogenous increases (decreases) in the bond supply...

Whereas much of previous literature focuses upon the impact on yields from the Federal Reserve's large-scale asset purchases (LSAPs), we study the changes to expected returns. Through a simple general equilibrium model, we motivate how LSAPs may impact equilibrium bond and equity expected...

On September 21st, 2016, the Bank of Japan (BOJ) embarked on a new unconventional monetary policy, called yield curve control (YCC). We show that YCC creates an arbitrage opportunity in an otherwise frictionless and arbitrage-free government bond market which financial institutions can exploit....

The purpose of this paper is to review the literature on inflation-adjusted bonds, swaps, and derivatives. The methodology for valuation and risk management of these securities is an application of the foreign currency extension of a standard HJM term structure model. The two “currencies” in...