Liquidity impacts monetary policy transmission – BoE paper
Hedge funds play key role in transmission at longer maturities, authors find
Liquidity conditions play a major role in how monetary policy transmits to government bond yields, an empirical study by the Bank of England finds.
The liquidity state-dependence of monetary policy transmission estimates the pass-through of policy shocks to bond markets, and looks for clues as to the main driving forces. Authors Rodrigo Guimaraes, Gabor Pinter and Jean-Charles Wijnandts find monetary policy has a larger effect on bond yields where market liquidity is greater.
This “liquidity
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