scholarly journals Combining Negative Rates, Forward Guidance and Asset Purchases: Identification and Impacts of the ECB's Unconventional Policies

2021 ◽  
Author(s):  
Massimo Rostagno ◽  
Carlo Altavilla ◽  
Giacomo Carboni ◽  
Wolfgang Lemke ◽  
Roberto Motto ◽  
...  
Keyword(s):  
Forward Guidance ◽  
Asset Purchases

scholarly journals A Preferred‐Habitat Model of the Term Structure of Interest Rates

Econometrica ◽  
2021 ◽  
Vol 89 (1) ◽  
pp. 77-112 ◽  
Author(s):  
Dimitri Vayanos ◽  
Jean-Luc Vila
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Large Scale ◽  
Relative Effect ◽  
Habitat Model ◽  
Bond Risk Premia ◽  
Forward Guidance ◽  
Preferred Habitat ◽  
Asset Purchases ◽  
Bond Risk

We model the term structure of interest rates that results from the interaction between investors with preferences for specific maturities and risk‐averse arbitrageurs. Shocks to the short rate are transmitted to long rates through arbitrageurs' carry trades. Arbitrageurs earn rents from transmitting the shocks through bond risk premia that relate positively to the slope of the term structure. When the short rate is the only risk factor, changes in investor demand have the same relative effect on interest rates across maturities regardless of the maturities where they originate. When investor demand is also stochastic, demand effects become more localized. A calibration indicates that long rates underreact to forward‐guidance announcements about short rates. Large‐scale asset purchases can be more effective in moving long rates, especially if they are concentrated at long maturities.

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