Shall we twist?

We study the implementation and effectiveness of Operation Twist, which represents the origin of today's unconventional monetary policy measures. Operation Twist serves as a perfect laboratory to assess the usefulness of such balance sheet policies because at that time interest rates were not at their lower bound and the economy was not in a historic turmoil. We assess the actions of the Fed and the Treasury under Operation Twist based on balance sheet data and evaluate the success of the operation using modern time series techniques. We find that the joint policy actions, despite being of rather moderate scale, were effective in compressing the long-short spreads of Treasury bond rates.