Quantitative Easing and the Term Premium as a Monetary Policy Instrument

The transmission of Quantitative Easing to aggregate macroeconomic variables through the yield curve is disentangled in two yield channels: the term premium channel, captured by a term premium series, and the signaling channel, that corresponds to the interest rate expectations counterpart. Both yield components are extracted from a term structure model and plugged into a Structural VAR with Euro Area macroeconomic variables in which shocks are identified using sign restrictions. With this set-up, I show how the central bank can use the term premium as a single monetary policy instrument to foster output and prices. However, I also show that there has been a cost channel in the transmission of QE to inflation between 2015 and 2017. This cost channel provides a new explanation as to why inflation has been so muted during this period, despite the easing monetary environment. Finally, a policy rule for the term premium is estimated

Did monetary policy kill the Phillips Curve? Some simple arithmetics

An apparent disconnect has taken place between inflation and economic activity in the US over the last 25 years, with price inflation remaining remarkably stable in spite of large fluctuations in the output gap and other measures of economic slack. This observation has led some to believe that the Phillips curve–a summary measure of aggregate supply–has flattened. We argue that this view may be premature and put forward a few, simple arithmetics which give rise to testable implications for demand and supply curve slopes. Equipped with New Keynesian theory and estimated SVAR models, we decompose the unconditional variation in US macro data into the components driven by demand and supply disturbances, and confront the inflation disconnect with our simple arithmetics. This exercise reveals a relatively stable supply curve slope once shocks to supply have been properly accounted for. The demand curve, instead, has flattened substantially in recent decades. Our results are at odds with a decline in the Phillips curve slope, but fully consistent with a shift towards a more firm monetary policy commitment to inflation stability.publishedVersio

Potential Growth and Natural Yield Curve in Japan

We estimate the yield curve gap in Japan and examine whether it has contributed to the sustained low growth and low inflation rates observed since the beginning 2000s. We use a semi-structural empirical model that generalizes Laubach and Williams’ approach, considering the entire range of maturities of the interest rates and dealing with the issue of mixed frequency sampling. We consider global factors exerting downward pressures on inflation and examine how the neutral yield curve has affected the snowball effect in the dynamics of the Japanese public debt ratio

Quantitative Easing and the Term Premium as a Monetary Policy Instrument

The transmission of Quantitative Easing to aggregate macroeconomic variables through the yield curve is disentangled in two yield channels: the term premium channel, captured by a term premium series, and the signaling channel, that corresponds to the interest rate expectations counterpart. Both yield components are extracted from a term structure model and plugged into a Structural VAR with Euro Area macroeconomic variables in which shocks are identified using sign restrictions. With this set-up, I show how the central bank can use the term premium as a single monetary policy instrument to foster output and prices. However, I also show that there has been a cost channel in the transmission of QE to inflation between 2015 and 2017. This cost channel provides a new explanation as to why inflation has been so muted during this period, despite the easing monetary environment. Finally, a policy rule for the term premium is estimated

Quantitative Easing and the Term Premium as a Monetary Policy Instrument

The transmission of Quantitative Easing to aggregate macroeconomic variables through the yield curve is disentangled in two yield channels: the term premium channel, captured by a term premium series, and the signaling channel, that corresponds to the interest rate expectations counterpart. Both yield components are extracted from a term structure model and plugged into a Structural VAR with Euro Area macroeconomic variables in which shocks are identified using sign restrictions. With this set-up, I show how the central bank can use the term premium as a single monetary policy instrument to foster output and prices. However, I also show that there has been a cost channel in the transmission of QE to inflation between 2015 and 2017. This cost channel provides a new explanation as to why inflation has been so muted during this period, despite the easing monetary environment. Finally, a policy rule for the term premium is estimated

Politique monétaire, courbe des taux d'intérêt et macroéconomie

Cette thèse a pour ambition d’aider à mieux comprendre le rôle des taux d’intérêt comme instrument de politique monétaire à la disposition des banques centrales pour influencer l’économie. Le premier chapitre de cette thèse propose une analyse du canal de transmission de la prime de risque des obligations du programme d’achat de dettes souveraines de la Banque Centrale Européenne, en s’intéressant aux variables macroéconomiques agrégées. Le second chapitre examine l’environnement de faible croissance et de faible inflation présent au Japon depuis les années 1990, via l’écart des courbes des taux. Ce chapitre élargit le concept de taux (court) d’intérêt naturel à celui de maturités intermédiaires et longues, et indique que les différents régimes de politique monétaire de la banque centrale du Japon n’ont pas eu un impact homogène sur l’écart des courbes des taux et sur l’économie Japonaise. Enfin, le troisième chapitre montre que la courbe de Phillips aux Etats-Unis - la relation structurelle entre l’inflation et une mesure d’activité économique réelle - n’est pas morte, contrairement à la pensée commune. Ce chapitre démontre que la pente de la courbe de Phillips n’est pas plate, une fois filtrée des chocs d’offre, et non uniquement des chocs attribuables à l'évolution des coûts. Ce chapitre trouve également des éléments qui tendent à montrer que l’apparent aplatissement de la courbe peut être attribué au fait que la Réserve Fédérale Américaine cible désormais l’inflation avec plus de rigueur que par le passé.This Ph.D. thesis has the ambition to help better understand the role of interest rates as a monetary policy instrument driving the economy for the central bank. The first chapter of the thesis analyzes the bond term premium transmission channel of the first sovereign bonds purchase programme of the European Central Bank, focusing on the impact on aggregated Euro Area macroeconomic variables. The second chapter investigates the low growth - low inflation environment present in Japan since the 1990s, through the yield curve gap. This chapter extends the concept of (short-term) natural rate of interest to medium and long-term maturities, and shows that the different monetary policy regimes implemented by the Bank of Japan did not have an homogeneous impact on the yield curve gap and on the Japanese economy. Finally, a third chapter demonstrates that the U.S. price Phillips curve - the structural relationship between price inflation and measures of real economic activity - is not dead, as opposed to the current common thinking. This chapter shows that the slope of the price Phillips curve is not flat, once filtered from all supply shocks, and not only cost-push shocks. The chapter also finds evidence that the apparent flattening of the curve is due to the fact that the U.S. Federal Reserve has become a stricter inflation targeter

Potential growth and natural yield curve in Japan

International audienceWe estimate the yield curve gap in Japan and examine whether it has contributed to the sustained low growth and low inflation rates observed since the beginning 2000s. We use a semi-structural empirical model that generalizes Laubach and Williams’ approach, considering the entire range of maturities of the interest rates and dealing with the issue of mixed frequency sampling. An important result is that, even in the absence of a zero lower bound, monetary and fiscal policies proved ineffective in bringing the Japanese economy out of a situation of prolonged stagnation and low inflation. This happened even when the yield curve moved below its natural level

Potential Growth and Natural Yield Curve in Japan

We estimate the yield curve gap in Japan and examine whether it has contributed to the sustained low growth and low inflation rates observed since the beginning 2000s. We use a semi-structural empirical model that generalizes Laubach and Williams’ approach, considering the entire range of maturities of the interest rates and dealing with the issue of mixed frequency sampling. We consider global factors exerting downward pressures on inflation and examine how the neutral yield curve has affected the snowball effect in the dynamics of the Japanese public debt ratio

Potential Growth and Natural Yield Curve in Japan

We estimate the yield curve gap in Japan and examine whether it has contributed to the sustained low growth and low inflation rates observed since the beginning 2000s. We use a semi-structural empirical model that generalizes Laubach and Williams’ approach, considering the entire range of maturities of the interest rates and dealing with the issue of mixed frequency sampling. We consider global factors exerting downward pressures on inflation and examine how the neutral yield curve has affected the snowball effect in the dynamics of the Japanese public debt ratio