Date of Submission

Spring 2018

Academic Programs and Concentrations

Economics

Project Advisor 1

L. Randall Wray

Abstract/Artist's Statement

This project looks at the effectiveness of Quantitative Easing on lowering long-term interest rates. To come up with an answer I look through three separate channels in which QE works to lower long-term rates: the speculation channel, inflations expectation channel, and portfolio balance channel. In examining these channels and their respective effects, I combine relative channel and general economic theory with data relative to each channel such as long-term yields, inflation expectation data, public holdings of federal debt, and much more in order to understand whether QE was at the forefront of the reduction in yields. Through these channels, we can see that QE did not have a major impact on reducing long-term interest rates as speculation can be only be credited for short-term rate reductions. Inflation expectations caused an increase in rates through price declines and resulting rate increases. The portfolio balance effect is limited; term premiums decreased, lowering yields, however, much of the decrease in yields came from investor prioritization of safe bonds, leading to a continued reduction of yield reductions. As a result, it is much more likely that the reduction of long-term rates can be credited to a struggling economy that promoted risk-averse behavior.

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Open Access

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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