Does Quantitative Easing Lower the Long-Term Interest Rates?

There is a consensus that during the Great Recession period quantitative easing puts downward pressure on long-term interest rates. Using quarterly data and vector autoregressive model this note provides empirical evidence that quantitative easing, measured by changes in monetary base as a percentage of gross domestic product, instead, positively affects the U.S. 10-year government bond yield. One possible explanation for this is that increasing the size of the Federal Reserve balance sheets raises optimism about the macroeconomy.