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Yield Curve Control

Simple Definition for Beginners: Yield curve control is a monetary policy tool used by central banks to manage interest rates and influence borrowing costs by targeting specific yields on government bonds across various maturities. Common Use Example: A central bank implements yield curve control by setting target yields on government bonds. This influences market interest rates, impacting lending rates for businesses and consumers. Technical Definition for Professionals: Yield curve control involves a central bank's strategy of targeting specific yields on government bonds, typically longer-term bonds, to influence interest rates and economic conditions. Key aspects of yield curve control include: · Target Yields: Central banks set target yields for government bonds, often focusing on longer-term maturities. · Open Market Operations: Central banks conduct open market operations, buying or selling bonds to achieve target yields. · Market Influence: By targeting specific yields, central banks influence market expectations, investor behavior, and borrowing costs. · Monetary Policy Transmission: Yield curve control is part of the broader monetary policy toolkit, impacting lending rates, investment decisions, and economic activity. · Policy Flexibility: Central banks can adjust target yields and bond purchases as economic conditions change, providing flexibility in monetary policy.