Title: What is yield curve control?
Headings: What is yield curve control?
What is yield curve control?
Sage Belz
Former Research Analyst - Hutchins Center on Fiscal & Monetary Policy, The Brookings Institution
David Wessel
Director - The Hutchins Center on Fiscal and Monetary Policy
Senior Fellow - Economic Studies
What is yield curve control, and why does it matter?
What do we learn from the Bank of Japan’s use of yield curve control?
How would YCC affect the economy?
What would an interest rate peg look like in the United States?
What are the downsides to YCC?

Content: While it would now be considered inappropriate for the Fed to explicitly reduce borrowing costs for the federal government, that experience demonstrates that the Fed could be successful in targeting medium and longer-term rates through purchases. In fact, when Fed staff studied potential unconventional policy options to reduce long-term rates in late 2008, they looked back on this experience as evidence that asset purchases or a similar policy could work. What do we learn from the Bank of Japan’s use of yield curve control? The BOJ is the only major central bank to have experimented with interest rate pegs in recent history. YCC is just one piece of the BOJ’s large policy effort that also includes quantitative easing, forward guidance, and negative interest rates—all aimed at lifting inflation. The Bank has been successful at maintaining a yield of zero percent on JGBs. In addition, YCC has allowed the BOJ to purchase fewer bonds in the last three years than it did under the large quantitative easing program that began in 2013. Until late 2016, the BOJ was purchasing about 100 trillion yen in JGBs each year. As a result, the BOJ’s balance sheet expanded much faster than that of other major central banks. Since the initiation of YCC, however, the BOJ has purchased government bonds at a slower pace and still kept yields on 10-year bonds at historically low levels.