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Gagnon et.al. (2011) using event studies12 _{based on LSAPs announcement dates regressed the 10-}

year yield term premium on the supply of government bonds, unemployment gap, core consumer price index (CPI) inflation found that the Fed’s first round LSAPs of $600 billion reduced term premium on the 10-year government bond by 30-82 basis points (bps). They conclude that the Fed’s LSAPs led to economically meaningful and long lasting reductions in longer-term interest on a range of securities such as Treasuries, agency mortgage-backed securities, and even securities not included in the LSAPs, which they believed was due to lower risk premiums including term premiums, rather than expectations of future short term interest rates.

Investigating the local supply effect using the 2009 Federal Reserve’s $300 billion purchase of nominal Treasury coupon securities, D’Amico and King (2010) estimated a significant local supply effect in the Treasury term structure: the yield on a given security fell in response to purchases of that security as well as securities of similar maturities. Their results indicate that the local-supply effects of the LSAP as a whole shifted the yield curve down by about 30bp. They also argued that on the days when a security was eligible to be brought, purchases of securities with similar maturities had almost as large effects on its yield as did purchases of the security

12 _{Event study assumes that all changes in the variable of interest that occur within a short time period are due to the event under} consideration. The event study literature largely follows Cook and Hahn (1989). Their work has been followed by a large number of papers applying a similar approach to various asset prices, including Bomfim (2003), Bomfim and Reinhart (2000), Cochrane and Piazzesi (2002), Kuttner (2001), Bernanke and Kuttner (2003), Roley and Sellon (1996, 1998), Thorbecke (1997),and Thornton (1998).

itself. This supports the view that Treasuries of similar maturities are close substitutes but that substitutability diminishes as maturities get farther apart which is consistent with the imperfect substitutability principle of the portfolio rebalance channel and the preferred habitat-theory of term structure.

Also providing additional empirical evidence in support of the preferred-habitat theory and portfolio rebalancing channel is Doh (2010), who tried to unravel the quick reversion of the 10- year Treasury yield to its pre-announcement level in only five weeks. His regression results suggest that the Fed’s LSAPs reduced the 10-year Treasury yield via the reduction in term premium, as implied by the preferred-habitat theory. Other important contributions on the effects of the Fed’s LSAPs in support of portfolio rebalancing and preferred habitat assumption include Hamilton and Wu (2011), Swanson (2011), and Neely (2012) who investigated the impact of the U.S. QE1 on foreign 10-year government bond rates. He submitted that the U.S. asset purchase announcements had significant impacts on the international long-term rates with falls of 78, 65, 54, 50, and 19bps in Australia, U.K., Canada, Germany and Japan, respectively while also reducing the spot value of the dollar.

However, a few others presented a different picture, emphasizing the importance of the signalling channel or the expectation hypothesis in the Fed LSAPs. For example, Krishnamurthy and Vissing-Jorgensen (2011), using an event study methodology to evaluate the effect of the Fed’s LSAPs between 2008-2009 (QE1) and 2010-2011 (QE2) on interest rates found significant evidence for the signalling channel which drove down the yields (with larger effects on intermediate than long-term bond) for both the QE1 and QE2. This led them to question whether the Fed could have achieved the economic recovery without the Fed taking on additional balance sheet risk.

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Providing evidence in support of both the signalling and portfolio rebalancing channels for the Fed’s first LSAPs program (QE1), are Bauer and Rudebusch (2013) who used an estimated dynamic term structure model (DTSM) to decompose the fall in long term (the 5-year and 10- year) Treasury yields into changes in expected future policy rates, and changes in term premium components. They found that cumulatively, the 10-year yield decreased by 89bps, while the 5- year yield decreased even more strongly by 97bps. For the 5-year yield, the relative contributions of expectations and term premium components are 32 percent and 68 percent, respectively. For the 10-year yield, the contributions are 35 and 65 percent, respectively for the expectations and term premium components.

Other notable contributions on the impacts of the Fed LSAPs include Christensen and Rudebusch (2012) who also substantiate an important role from the signalling channel for the Fed’s LSAPs, Wright (2011), and Glick and Leduc (2012), who estimated the total effect on the 10-year U.S. Treasury yield over all LSAPs announcements declined by approximately 100bp.

Lo Duca et.al. (2016) analysed the link between global corporate bond issuance and the US QE using a panel setting. They find that purchases and holdings of MBS and Treasuries by the Fed have a strong impact on gross corporate bond issuance across advanced and emerging economies. Specifically, asset holdings and purchases crowded out investors from markets where the Fed intervened and accelerated portfolio rebalancing across assets and countries leading to stronger corporate bond issuance across the globe. A counterfactual analysis shows that bond issuance in emerging markets since 2009 would have been halved without QE.