The Federal Reserve's Large‐scale Asset Purchase Programmes: Rationale and Effects
AbstractWe provide empirical estimates of the effect of large-scale asset purchase (LSAP)-style operations on longer-term U.S. Treasury yields within a framework that nests the alternative theoretical perspectives on LSAPs. As the principal channels through which LSAPs might matter for longer-term interest rates, we concentrate on (i) the scarcity (available local supply) channel associated with the traditional preferred habitat literature, and (ii) the duration channel associated with the general notion of interest rate risk. We also clarify LSAPs' role in the broader context of monetary policy strategy, bringing out the connections between purchases of longer-term assets and historical Federal Reserve policy approaches. Our results indicate that the impact of LSAP-style operations on longer-term interest rates is mainly felt on the nominal term-premium component; moreover, within the nominal term premium, it is the real term premium that experiences the greatest response. The estimates suggest that the scarcity and duration channels have both been of considerable importance for the transmission of purchases to longer-term Treasury yields. Finally, by isolating the degree to which scarcity and duration impinge on term premiums, our estimates indicate the direction in which macroeconomic models should develop in order to encompass the transmission channels associated with LSAPs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 122 (2012)
Issue (Month): 564 (November)
Contact details of provider:
Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
Phone: +44 1334 462479
Web page: http://www.res.org.uk/
More information through EDIRC
Other versions of this item:
- Stefania D'Amico & William English & David López-Salido & Edward Nelson, 2012. "The Federal Reserve's large-scale asset purchase programs: rationale and effects," Finance and Economics Discussion Series 2012-85, Board of Governors of the Federal Reserve System (U.S.).
- D'Amico, Stefania & English, William & López-Salido, J David & Nelson, Edward, 2012. "The Federal Reserve’s Large-Scale Asset Purchase Programs: Rationale and Effects," CEPR Discussion Papers 9145, C.E.P.R. Discussion Papers.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Neil Wallace, 1967. "The Term Structure Of Interest Rates And The Maturity Composition Of The Federal Debt," Journal of Finance, American Finance Association, vol. 22(2), pages 301-312, 05.
- Michael D. Bauer & Glenn D. Rudebusch, 2011. "The signaling channel for Federal Reserve bond purchases," Working Paper Series 2011-21, Federal Reserve Bank of San Francisco.
- James D. Hamilton & Jing Cynthia Wu, 2012.
"The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 44, pages 3-46, 02.
- James D. Hamilton & Jing Cynthia Wu, 2011. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," NBER Working Papers 16956, National Bureau of Economic Research, Inc.
- Franco Modigliani & Richard Sutch, 1967. "Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience," Journal of Political Economy, University of Chicago Press, vol. 75, pages 569.
- Hess Chung & Jean-Philippe Laforte & David Reifschneider & John C. Williams, 2011.
"Have we underestimated the likelihood and severity of zero lower bound events?,"
Working Paper Series
2011-01, Federal Reserve Bank of San Francisco.
- Hess Chung & Jean‐Philippe Laforte & David Reifschneider & John C. Williams, 2012. "Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 47-82, 02.
- Ann-Marie Meulendyke, . "U.S. monetary policy and financial markets," Monograph, Federal Reserve Bank of New York, number 1998mpaf.
- Arturo Estrella & Gikas A. Hardouvelis, 1989.
"The term structure as a predictor of real economic activity,"
8907, Federal Reserve Bank of New York.
- Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June.
- Walsh, Carl E., 1982. "Asset substitutability and monetary policy : An alternative characterization," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 59-71.
- Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352.
- Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004.
"Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
- Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary policy alternatives at the zero bound: an empirical assessment," Finance and Economics Discussion Series 2004-48, Board of Governors of the Federal Reserve System (U.S.).
- Frederic S. Mishkin, 1978. "Efficient-Markets Theory: Implications for Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 707-752.
- Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2012. "The Aggregate Demand for Treasury Debt," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 233 - 267.
- James L. Pierce, 1974. "Quantitative Analysis for Decisions at the Federal Reserve," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 11-20 National Bureau of Economic Research, Inc.
- Falagiarda, Matteo, 2013. "Evaluating Quantitative Easing: A DSGE Approach," MPRA Paper 49457, University Library of Munich, Germany.
- Michael Joyce & David Miles & Andrew Scott & Dimitri Vayanos, 2012. "Quantitative Easing and Unconventional Monetary Policy – an Introduction," Economic Journal, Royal Economic Society, vol. 122(564), pages F271-F288, November.
- Jagjit S Chadha & Philip Turner & Fabrizio Zampolli, 2013. "The interest rate effects of government debt maturity," BIS Working Papers 415, Bank for International Settlements.
- Jagjit S. Chadha & Philip Turner & Fabrizio Zampolli, 2013. "The Ties that Bind: Monetary Policy and Government Debt Management," Studies in Economics 1318, Department of Economics, University of Kent.
- Michael E. Cahill & Stefania D’Amico & Canlin Li & John S. Sears, 2013. "Duration risk versus local supply channel in Treasury yields: evidence from the Federal Reserve's asset purchase announcements," Finance and Economics Discussion Series 2013-35, Board of Governors of the Federal Reserve System (U.S.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.