The Effectiveness Of Alternative Monetary Policy Tools In A Zero Lower Bound Environment

This paper reviews alternative options for monetary policy when the short-term interest rate is at the zero lower bound and develops new empirical estimates of the effects of the maturity structure of publicly held debt on the term structure of interest rates. The authors use a model of risk-averse arbitrageurs to develop measures of how the maturity structure of debt held by the public might affect the pricing of level, slope and curvature term-structure risk. They find these Treasury factors historically were quite helpful for predicting both yields and excess returns over 1990-2007.