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Interest Rate, Credit, and Monetary Policy in a Low Interest Rate Environment /


My dissertation seeks to better understand the unconventional monetary policies that the Federal Reserve and the Bank of Japan have been conducting for the past decade and how these policies influence the markets of government securities, money, and credit. In the first chapter, I study market friction and its implication for the Federal Reserve's quantitative easing policies. Given sufficient market friction, changes in the supply of Treasury securities can affect yields. This research adds to our understanding of the supply effects of quantitative easing because the mechanics of Treasury auctions and the Federal Reserve's implementation of quantitative easing are similar. I examine the slopes of Treasury auction demand based on the bids and the changes in interest rates around the times of Treasury auctions between January 2000 and January 2011. From the implied quantity impact of these estimates, I infer an upper bound on the supply effects of quantitative easing. The finding suggests that quantitative easing is more effective when market frictions are high. Forward guidance is another way a central bank can ease the economy. My second chapter uses the Svensson yield curve model to fit and calculate a measure of policy duration to infer the effects of central bank guidance. Using the policy duration and interest rate time series for both the US and Japan, I attribute their movements to various types of news from newswire reporting. I find that much of the movements from the time series are due to non-central bank events. Monetary policy ultimately seeks to affect the real economy. My final chapter (co-authored with Ulrike Schaede) looks at the real effects of monetary policies in Japan. The Japanese Tankan survey is used to disentangle the change in bank lending and the change in firm borrowing at the industry level. Thus, we can examine how policy variables correlate with trade credit as well as bank lending needs from the 1980s to 2009. We find that the relationship of trade credit and bank loan is different depending on whether firms are constrained on the supply or demand side

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