Canlin Li and Min Wei
Abstract: This paper estimates an arbitrage-free term structure model with both observable yield factors and Treasury and Agency MBS supply factors, and uses it to evaluate the term premium effects of the Federal Reserve's large-scale asset purchase programs. Our estimates show that the first and the second large-scale asset purchase programs and the maturity extension program jointly reduced the 10-year Treasury yield by about 100 basis points.
Keywords: No-arbitrage term structure models, yield curve, preferred habitat, supply effects, factor models, large-scale asset purchases (LSAP), agency mortgage-backed securities (MBS)
Note: This paper is a revised version of FEDS Working Paper #2012-37.Full paper (196 KB PDF) | Full paper (Screen Reader Version)