Transmission of Quantitative Easing: The Role of Central Bank Reserves

Abstract

We argue that the issuance of central bank reserves per se can matter for the effect\rof central bank large-scale asset purchases—commonly known as quantitative easing—\ron long-term interest rates. This effect is independent of the assets purchased, and runs\rthrough a reserve-induced portfolio balance channel. For evidence we analyze the reaction\rof Swiss long-term government bond yields to announcements by the Swiss National Bank\rto expand central bank reserves without acquiring any long-lived securities. We find that\rdeclines in long-term yields following the announcements mainly reflected reduced term\rpremiums suggestive of reserve-induced portfolio balance effects.\r