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The authors explore the macroeconomic impact of a compression in the long-term bond yield spread within the context of the Great Recession of 2007-2009 via a Bayesian time-varying parameter structural VAR. They identify a 'Pure' spread shock which, leaving the short-term rate unchanged by construction, allows them to characterise the macroeconomic impact of a compression in the yield spread induced by central banks' asset purchases within an environment in which the short rate cannot move because it is constrained by the zero lower bound.
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