School of Economics

2014 Discussion papers

School of Economics Discussion Paper 14/18

Applying a Macro-Finance Yield Curve to UK
Quantitative Easing

Jagjit S. Chadha and Alex Waters
University of Kent and The Commonwealth Secretariat

December 2014


We estimate a macro-finance yield curve model for both the nominal and real forward curve for the UK from 1993 to 2008. Our model is able to accommodate a number of key macroeconomic variables and allows us to estimate the instantaneous response of the yield curve and so gauge the impact of Quantitative Easing on forward rates. We find that 10 year nominal interest rates on average are lower by 46 basis points which can largely be explained by three main channels: portfolio balance; liquidity premium and signalling but there is no sizeable impact on real interest rates.

JEL Classification: E43; E44; E47; E58; E65

Keywords: Term Structure of Interest Rates; Monetary Policy; Quantitative Easing

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Published in Journal of Banking & Finance 39 (2014) 68–86.


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Last Updated: 12/03/2015