Research On The Impact Of Government Debt Monetization On The Term Structure Of Interest Rates

Since the financial crisis swept the world in 2008,central banks have taken active measures to prevent their economies from falling into recession.However,even if the policy interest rate has dropped to historic lows,the stimulus has been limited and traditional monetary policy has failed.In contrast,unconventional monetary policy is increasingly being mentioned by academics and policymakers in countries as a new force for stimulating the economy.Monetization of government debt,also known as monetary financing,monetization of deficits,or helicopter money,simply means that a central bank finances government debt by printing(issuing)currency.Since November 2008,with three rounds of QE,the Fed bought some $2 trillion of U.S.Treasury bills,not only injecting a lot of liquidity into the market,but also financing fiscal spendin g to help pull the U.S.economy out of its doldrums.Since late 2015,when signs of recovery have emerged,the Federal Reserve has begun to consider scaling back its balance sheet.As the world's largest economy,the United States has a special position in the world economy and politics,and the changes in its policies have aroused widespread concern among politicians and economists all over the world.The study of the influence of the increase in the proportion of Federal Reserve Treasury bonds on the term structure of interest rates and other macroeconomic variables during the expansion of the Federal Reserve's balance sheet is of great significance for the understanding of shrinking statements.As a developing country,the monetization of debt still has some room for operation in our country.Especially when China is facing the difficulties of local city debt repayment,the Ministry of Finance has launched the "Local debt replacement Program" to alleviate the local government's debt distress.Through the monetization of public debt,the central bank can directly purchase the local bonds held by the banks after the replacement,which can fully mobilize the enthusiasm of commercial banks to carry out stock debt replacement.Moreover,the bank system should be injected with sufficient liquidity to further reduce the interest rate on loans,thus promoting the coordination of fiscal and monetary policies and ensuring the smooth and orderly and healthy development of our economy under the new normal conditions.In order to study the monetization of government debt more deeply,this paper first introduces the concept,form and theoretical development of the government debt monetization.Then,taking the Japan,Britain and the EU as an example,this paper makes a comprehensive analysis of the history and current situation of government monetization,and then reviews the relevant theories of it.Next,on the basic of theory analysis,we use the proportion of the treasury securities held by the Federal Reserve as the measure of government debt monetization,through the construction of DRA model to study the interaction effect among the US government debt monetization,the interest rate term structure of treasury bonds and other macro-variables.The results show that the change of the rate of the government debt monetization has a significant impact on the interest rate term structure of treasury bonds.The analysis of this paper not only helps us to improve our understanding of the effect of the Federal Reserve's monetary policy,but also has certain reference(for us)to research the future influence of the reduction of the Federal Reserve's balance sheet.