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What does Monetary Policy do to Long-term Interest Rates at the Zero Lower Bound?


  • Corresponding author: Jonathan H. Wright, Department of Economics, Johns Hopkins University, Baltimore, MD 21218, USA. Email:

  • I am grateful to an anonymous referee, Tobias Adrian, Joseph Gagnon, Refet Gürkaynak, Andrew Scott, Eric Swanson and participants at the Bank of England conference on quantitative easing and unconventional monetary policy for their very helpful comments on earlier drafts. All errors are my sole responsibility.


This article uses a structural VAR with daily data to identify the effects of monetary policy shocks on various longer term interest rates since the federal funds rate has been stuck at the zero lower bound. The VAR is identified using the assumption that monetary policy shocks are heteroskedastic: monetary policy shocks have especially high variance on days of FOMC meetings and certain speeches, while there is otherwise nothing unusual about these days. A complementary high-frequency event-study approach is also used. I find that stimulative monetary policy shocks lower Treasury and corporate bond yields but the effects die off fairly fast.