Market ‘tightness’ affects QE success – Riksbank paper

Photo by David Lundberg
Sveriges Riksbank. Image: David Lundberg

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