Yield Curve Control (YCC) is a

monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often ...

action whereby a

central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a centra ...

purchases variable amounts of

government bond A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments'','' and to repay the face value on the maturity ...

s or other

financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as deposit (finance), bank deposits, bond (finance), bonds, and participations in companies' share capital. Financial assets are usually more market liq ...

s in order to target interest rates at a certain level. It generally means buying bonds at a slower rate than would occur under a

Quantitative Easing Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary p ...

policy. It affects long term interest rates, where as QE is more impactful on shorter term interest rates. Where QE focuses on quantities of bonds, YCC is concerned with the price. It can be thought of as a more effective form of QE: In QE the central bank buys bonds, but does not have a target for what interest rate those purchases will bring. In YCC, the central bank intentionally buys enough bonds to reach a certain interest rate target. Two examples of Yield Curve Control can be found in the United States after World War II, where bonds were purchased to keep interest rates low to allow cheaper government funding of the war effort, and in Japan, early 21st century, where bonds were purchased to keep long term interest rates at 0%, in an effort to stimulate the economy.

References

Operations of central banks Financial markets Inflation Monetary policy Bond market {{econ-policy-stub

See Also

References