1. The effectiveness of alternative monetary policy tools in a zero lower bound environment James D. Hamiton, Jing C. Wu Discussed by Caterina Rho

2. Outline of the paper Theoretical model about the effects of the maturity structure of publicly held debt on the term structure of interest rates. Empirical analysis of the effect of a maturity swap operation by the Fed, in normal times and at the ZLB. ▫In normal times: decrease of 14 bp in long run interest rate and increase of 11 bp in short run interest rate. ▫At the ZLB: decrease of 13bp in long term interest rates without an increase in short term rates.  A swap on maturities has the same effect as an expansive open market operation based on buying long term debt.

3. Main points Theoretical approach: Affine Term Structure model with preferred-habitat investing and market arbitrage. Empirical approach: AR(1) to model pricing factors, maximum likelihood estimation. ▫Main finding: historical measures of how the maturity structure of debt might affect the pricing of level, slope and curvature term-structure risk.

4. Contributions of the paper Improvement in theory: the model is a discrete time version of Vayanos and Vila (2009). Endogeneity between bond supplies and interest rates: minimized by looking at forecasting rather than contemporaneous regressions. Non standard point of view on the role of maturity composition of government debt and investors behaviour. Extension with risky assets.

5. Comments and suggestions (1) The analysis in the ZLB framework is based on the assumption that agents expect to eventually break out from the ZLB. ▫What happen if the agents expect to remain in the ZLB? E.g. Japan

6. Source: FRED, St. Louis Fed

7. Comments and suggestions (2) Importance of the frequency of data: Modigliani and Sutch (1966) vs Swanson (2011) In the model the lenders have a preferred habitat, the borrowers are arbitrageurs. ▫What if also the primary private borrowers have a preferred habitat?

8. Comments and suggestions (3) Opening the economy introducing different countries. ▫The extension of the paper regards risky assets as non-treasury securities. We could use treasury bonds issued by different countries with different sovereign risk instead of private securities.

9. Conclusion The paper presents both theoretical and empirical contributions: ▫Discrete version of a ATS model with preferred- habitat investing and market arbitrage. ▫Description of the dynamic behavior of the term structure at ZLB. Role of expectations and preferences. Additional alternative specifications: open economy setting and “flight to quality”.