The Impact Of U.S. Quantitative Easing Monetary Policy On U.S. Treasury Yields

The global economy suffered heavy losses from the international financial crisis.In order to smooth the volatility of financial markets, improve the financial marketliquidity, promote economic growth and employment, the Quantitative Easingmonetary policy (Hereinafter referred to as QE) have been to implement.Quantitative Easing monetary policy was created under the condition of thetraditional monetary policy ineffective. The policy goal, operating tools andtransmission mechanism of QE are different from traditional monetary policy.Moreover, the specific policies implemented by countries are different. Butthroughout the implementation of national policies, are invariably made acommitment to keep the target interest rate at very low levels, and have implementedlarge-scale asset purchase program. As the traditional monetary policy, thetransmission of QE is also divided into two parts. The first part is the central bank toraise the prices of financial assets through interest rate commitment and large-scaleasset purchase program. The second part is to use the prices of assets to achieve theultimate goal of the policy.This paper mainly focused on the first part. The main research is the impact ofQuantitative Easing monetary policy in the United States on U.S. Treasury yields.This paper first introduces the research status. Then, analyze the QE’s policy goal andtransmission mechanism theoretically. This paper argues that QE mainly through twoways to affect the yields of financial assets. First, the large-scale assets purchasesprogram changes the relative supply in the bond market. Second is the interest rate commitment. Finally, this paper applies the event study methodology in order toevaluate the impact of monetary policy announcements on the U.S. treasury yields tomaturity. And estimate a vector auto regression (VAR) model, impulse response andvariance decomposition, intended to capture the influences on10-year treasury yieldsto maturity. The results show that: as the introduction of QE, each term treasuryyields are reduced. However, due to the expectations and the limited space of policyimplementation, the effect of QE1is greater than the others. Moreover, by impulseresponse and variance decomposition results show that: the effects of QE appear witha lag. In the short term, the10-year treasury yields mainly affected by its ownvolatility. The interest rate commitment, large-scale asset purchase program havelimited but persistence influence. In addition, the empirical results also indicate thatlower long-term treasury yields can not achieve the purpose which stimulateinvestment and promote economic growth.