Market ‘tightness’ affects QE success – Riksbank paper
Model accounting for demand and supply of bonds allows authors to reveal new insights
The effectiveness of quantitative easing (QE) depends importantly on the degree of "tightness" in the bond market, according to a working paper published on February 7 by Sveriges Riksbank.
Marien Ferdinandusse, Maximilian Freier and Annukka Ristiniemi employ a search theoretic model, in which bond market tightness works much the same way as labour market tightness in standard models. Investors that have a stronger "preferred habitat" increase bond market tightness, and the tighter the market
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