IDEAS home Printed from https://ideas.repec.org/a/kap/atlecj/v44y2016i4d10.1007_s11293-016-9511-9.html
   My bibliography  Save this article

The Wealth Effects of Quantitative Easing

Author

Listed:
  • John H. Huston

    (Trinity University)

  • Roger W. Spencer

    (Trinity University)

Abstract

The Federal Reserve employed aggressive measures over the past eight years to stimulate a sluggish economy. These included Operation Twist and quantitative easing rounds one (QEI), two (QEII), and three (QEIII) with an emphasis on the purchase of mortgage-backed securities. Chairman Ben Bernanke made it clear that the Fed’s policies should work not only through low interest rates alone, but also through wealth creation. This paper explores the effectiveness of the Fed’s actions to increase asset prices and thus enable the wealth effect. We find that increases in monetary aggregates, such as the monetary base, excess reserves and M2, increased equity prices. This was particularly evident in Operation Twist and the purchase of mortgage-backed securities. The purchase of mortgage-backed securities was also seen as increasing housing prices.

Suggested Citation

  • John H. Huston & Roger W. Spencer, 2016. "The Wealth Effects of Quantitative Easing," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(4), pages 471-486, December.
    • Handle: RePEc:kap:atlecj:v:44:y:2016:i:4:d:10.1007_s11293-016-9511-9
    DOI: 10.1007/s11293-016-9511-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11293-016-9511-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11293-016-9511-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
    2. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    3. Palumbo, Michael & Rudd, Jeremy & Whelan, Karl, 2006. "On the Relationships Between Real Consumption, Income, and Wealth," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 1-11, January.
    4. Buiter, Willem H., 2010. "Housing wealth isn't wealth," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-29.
    5. Catherine Mann & Oren Klachkin, 2015. "Has Quantitative Easing Affected the U.S. Treasury Auction Market?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 135-146, March.
    6. Refet S. Gürkaynak & Jonathan H. Wright, 2013. "Identification and Inference Using Event Studies," Manchester School, University of Manchester, vol. 81, pages 48-65, September.
    7. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 215-287.
    8. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
    9. Kapetanios, George, 2001. "Incorporating lag order selection uncertainty in parameter inference for AR models," Economics Letters, Elsevier, vol. 72(2), pages 137-144, August.
    10. J. Walter Elliott, 1980. "Wealth and Wealth Proxies in a Permanent Income Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(3), pages 509-535.
    11. Jonathan H. Wright, 2012. "What does Monetary Policy do to Long‐term Interest Rates at the Zero Lower Bound?," Economic Journal, Royal Economic Society, vol. 122(564), pages 447-466, November.
    12. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 215-287.
    13. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
    14. Sewin Chan & Henry Schneider & Joseph Tracy, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Apr).
    15. John D. Benjamin & Peter Chinloy & G. Donald Jud, 2004. "Real Estate Versus Financial Wealth in Consumption," The Journal of Real Estate Finance and Economics, Springer, vol. 29(3), pages 341-354, November.
    16. Brett W. Fawley & Christopher J. Neely, 2013. "Four stories of quantitative easing," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 51-88.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jae Young Jang & Erdal Atukeren, 2019. "Sustainable Local Currency Debt: An Analysis of Foreigners’ Korea Treasury Bonds Investments Using a LA-VARX Model," Sustainability, MDPI, vol. 11(13), pages 1-23, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carlo Altavilla & Domenico Giannone, 2017. "The Effectiveness of Non‐Standard Monetary Policy Measures: Evidence from Survey Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(5), pages 952-964, August.
    2. Bernhard, Severin & Ebner, Till, 2017. "Cross-border spillover effects of unconventional monetary policies on Swiss asset prices," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 109-127.
    3. Meinusch, Annette & Tillmann, Peter, 2016. "The macroeconomic impact of unconventional monetary policy shocks," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 58-67.
    4. Mamatzakis, Emmanuel & Bermpei, Theodora, 2016. "What is the effect of unconventional monetary policy on bank performance?," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 239-263.
    5. Claus, Edda & Claus, Iris & Krippner, Leo, 2018. "Asset market responses to conventional and unconventional monetary policy shocks in the United States," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 270-282.
    6. Mamaysky, Harry, 2018. "The time horizon of price responses to quantitative easing," Journal of Banking & Finance, Elsevier, vol. 90(C), pages 32-49.
    7. Swanson, Eric T., 2021. "Measuring the effects of federal reserve forward guidance and asset purchases on financial markets," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 32-53.
    8. Belke, Ansgar & Gros, Daniel & Osowski, Thomas, 2016. "Did quantitative easing affect interest rates outside the US? New evidence based on interest rate differentials," CEPS Papers 11266, Centre for European Policy Studies.
    9. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2015. "Que peut-on attendre de l’assouplissement quantitatif de la BCE ?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(2), pages 265-290.
    10. Song, Zhaogang & Zhu, Haoxiang, 2018. "Quantitative easing auctions of Treasury bonds," Journal of Financial Economics, Elsevier, vol. 128(1), pages 103-124.
    11. Simon Gilchrist & Vivian Z. Yue & Egon Zakrajšek, 2016. "The Response of Sovereign Bond Yields to U.S. Monetary Policy," Central Banking, Analysis, and Economic Policies Book Series, in: Elías Albagli & Diego Saravia & Michael Woodford (ed.),Monetary Policy through Asset Markets: Lessons from Unconventional Measures and Implications for an Integrated World, edition 1, volume 24, chapter 8, pages 257-283, Central Bank of Chile.
    12. Bhattarai, Saroj & Chatterjee, Arpita & Park, Woong Yong, 2021. "Effects of US quantitative easing on emerging market economies," Journal of Economic Dynamics and Control, Elsevier, vol. 122(C).
    13. Berndt, Antje & Yeltekin, Şevin, 2015. "Monetary policy, bond returns and debt dynamics," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 119-136.
    14. Guidolin, Massimo & Orlov, Alexei G. & Pedio, Manuela, 2017. "The impact of monetary policy on corporate bonds under regime shifts," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 176-202.
    15. Gomis-Porqueras Pedro & Rafiq Shuddhasattwa & Yao Wenying, 2023. "The impact of forward guidance and large-scale asset purchase programs on commodity markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 27(4), pages 519-551, September.
    16. Sophocles N. Brissimis & Evangelia A. Georgiou, 2022. "The effects of Federal Reserve's quantitative easing and balance sheet normalization policies on long-term interest rates," Working Papers 299, Bank of Greece.
    17. Ki Young Park & Ji Yong Um, 2016. "Spillover Effects of United States’ Unconventional Monetary Policy on Korean Bond Markets: Evidence from High-Frequency Data," The Developing Economies, Institute of Developing Economies, vol. 54(1), pages 27-58, March.
    18. Simon Gilchrist & Egon Zakrajšek, 2013. "The Impact of the Federal Reserve's Large‐Scale Asset Purchase Programs on Corporate Credit Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 29-57, December.
    19. Robin Greenwood & Samuel G. Hanson & Dimitri Vayanos, 2016. "Forward Guidance in the Yield Curve: Short Rates versus Bond Supply," Central Banking, Analysis, and Economic Policies Book Series, in: Elías Albagli & Diego Saravia & Michael Woodford (ed.),Monetary Policy through Asset Markets: Lessons from Unconventional Measures and Implications for an Integrated World, edition 1, volume 24, chapter 2, pages 011-062, Central Bank of Chile.
    20. Ferrari, Massimo & Kearns, Jonathan & Schrimpf, Andreas, 2021. "Monetary policy’s rising FX impact in the era of ultra-low rates," Journal of Banking & Finance, Elsevier, vol. 129(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:atlecj:v:44:y:2016:i:4:d:10.1007_s11293-016-9511-9. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.