Liquidity Efiects at the Zero Lower Bound

Monetary expansions are often found to have liquidity efiects on short term interest rates. This paper claims that at the zero lower bound, the liquidity efiect has shifted from the short to the longer end of the yield curve. For weekly US data, this paper shows that the change in non-borrowed reserves has a negative efiect on the long-term Treasury yield during the zero-lower-bound period, deflned as January 2009 to October 2010. Reserves are not signiflcant for the early subsample ranging from January 2003 to December 2007. We control for the change in supply of Treasuries of the respective maturity, in∞ation expectations, the expected path of future short-term interest rates, safe haven efiects, uncertainty about the expected path of future in∞ation and interest rates, as well as potential spill-over efiects from the LSAP program. JEL: E43 - Interest Rates: Determination, Term Structure, and Efiects E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit