Does quantitative easing affect market liquidity?
AbstractThe second round of large-scale asset purchases by the Federal Reserve—frequently referred to as QE2—included repeated purchases of Treasury inflation-protected securities (TIPS). To quantify the effect QE2 had on the functioning of the TIPS market and the related market for inflation swaps, we exploit the measure of combined liquidity premiums in TIPS yields and inflation swap rates derived by Christensen and Gillan (2012). We find that, on TIPS purchase dates, the liquidity premium dropped by 8 to 11 basis points depending on maturity, or about 50 percent. Furthermore, the effect was sustained on nonpurchase dates during most of the program, but dissipated towards its end.
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Bibliographic InfoPaper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2013-26.
Date of creation: 2013
Date of revision:
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- Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010.
"Large-scale asset purchases by the Federal Reserve: did they work?,"
441, Federal Reserve Bank of New York.
- Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "Large-scale asset purchases by the Federal Reserve: did they work?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 41-59.
- Jens H.E. Christensen & Glenn D. Rudebusch, 2012.
"The response of interest rates to U.S. and U.K. quantitative easing,"
Working Paper Series
2012-06, Federal Reserve Bank of San Francisco.
- Jens H. E. Christensen & Glenn D. Rudebusch, 2012. "The Response of Interest Rates to US and UK Quantitative Easing," Economic Journal, Royal Economic Society, vol. 122(564), pages F385-F414, November.
- Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December.
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