Description

In this paper we study, by means of an econometric analysis, whether the bond issuing policy of the Central Bank of Chile has an effect on market real interest rates. The working hypothesis is that such an effect may be produced either by the issuance or by unanticipated changes of that. Interest rates are assumed to follow an autoregressive process, where changes and some events would affect his path. In order to capture that dynamic, we estimate a VAR model with exogenous variables representing the bond market events and excess demand in the auctions. The results indicate that unanticipated changes in financial policy, measured as changes in the monthly announced quota, have a significant and persistent impact, especially on the 10- year interest rate. Furthermore, the relationship between demand and supply, measured as the inverse of the bid-to-cover ratio, has a significant effect. An analysis on the stability of the parameters shows that the financial crisis of 2008 generated significant instability. In particular, for the 10-year interest rate, unanticipated changes in quotas go from not being significant in the period before April 2008 to being significant after September 2008.