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Has Quantitative Easing Affected the Predictive Power of the Yield Curve? Evidence from Nine Advanced Economies

Lodén, Arvid LU (2020) NEKP01 20201
Department of Economics
Abstract
Since the global financial crisis in 2007-2008 several central banks around the world have introduced Quantitative Easing. Earlier literature has proven that this has caused significant downward pressure on yields in many economies. This study examines if the introduction of Quantitative Easing has changed the predictive power of the yield curve on future economic activity in nine advanced economies. The empirical results show that the yield spreads ability to predict future economic activity varies across lag lengths and countries where the highest goodness of fit is achieved for the United States. Furthermore, this study provides some indications that the level of a central banks balance sheet has some effect on the marginal effect of... (More)
Since the global financial crisis in 2007-2008 several central banks around the world have introduced Quantitative Easing. Earlier literature has proven that this has caused significant downward pressure on yields in many economies. This study examines if the introduction of Quantitative Easing has changed the predictive power of the yield curve on future economic activity in nine advanced economies. The empirical results show that the yield spreads ability to predict future economic activity varies across lag lengths and countries where the highest goodness of fit is achieved for the United States. Furthermore, this study provides some indications that the level of a central banks balance sheet has some effect on the marginal effect of the yield spread on future economic activity. However, more research is needed to understand the effects caused by Quantitative Easing entirely. (Less)
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author
Lodén, Arvid LU
supervisor
organization
course
NEKP01 20201
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Yield curve, Recession, Monetary policy, Quantitative Easing
language
English
id
9021614
date added to LUP
2020-08-29 11:08:52
date last changed
2020-08-29 11:08:52
@misc{9021614,
  abstract     = {Since the global financial crisis in 2007-2008 several central banks around the world have introduced Quantitative Easing. Earlier literature has proven that this has caused significant downward pressure on yields in many economies. This study examines if the introduction of Quantitative Easing has changed the predictive power of the yield curve on future economic activity in nine advanced economies. The empirical results show that the yield spreads ability to predict future economic activity varies across lag lengths and countries where the highest goodness of fit is achieved for the United States. Furthermore, this study provides some indications that the level of a central banks balance sheet has some effect on the marginal effect of the yield spread on future economic activity. However, more research is needed to understand the effects caused by Quantitative Easing entirely.},
  author       = {Lodén, Arvid},
  keyword      = {Yield curve,Recession,Monetary policy,Quantitative Easing},
  language     = {eng},
  note         = {Student Paper},
  title        = {Has Quantitative Easing Affected the Predictive Power of the Yield Curve? Evidence from Nine Advanced Economies},
  year         = {2020},
}