02107cas a2200241 a 4500 AALejournalIMF014773 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498317245 1018-5941 BD-DhAAL BD-DhAAL Wu, Tao. Unconventional Monetary Policy and Long-Term Interest Rates / Tao Wu. Washington, D.C. : International Monetary Fund, 2014. 1 online resource (49 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper examines the transmission mechanism through which unconventional monetary policy affects long-term interest rates. I construct a real-time measure summarizing market projections of the magnitude and duration of the Federal Reserve's Large Scale Asset Purchases (LSAP) program, and analyze the determination of term premiums and expectations of future short-term interest rates in a sample spanning more than two decades. Empirical findings suggest that the LSAP has effectively lowered the long-term Treasury bond yields, through both "signaling" and "portfolio balance" channels. On the other hand, the Fed's "forward guidance" also leads to gradual extension of market projections for the duration of the LSAP program, thereby enhancing the LSAP's effect to keep term premiums low. Estimation results also reveal a diminished effectiveness of the LSAP during QE III. Finally, model simulations underscore the importance of policy transparency in minimizing unnecessary market turbulence and ensuring a timely and smooth exit of the unconventional monetary policy stimulus. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2014/189 Full text available on IMF http://elibrary.imf.org/view/journals/001/2014/189/001.2014.issue-189-en.xml IMF e-Library