One final word of caution. It is true that imperfect asset substitutability does give the government or the central bank an additional policy tool. But there is a qualification: Goodhart’s Law will eventually apply to debt operations. 14 The central bank may virtually fix the yield of its target bond. But if central bank action is known to have concentrated on a particular maturity, then its information content is compromised. Investors may judge that such paper is overpriced relative to paper of other maturities, and therefore avoid buying it. In time, private sector contracts might avoid referencing an interest rate regarded.
