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Unexpected Supply Effects of Quantitative Easing and Tightening

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Abstract

To analyze the evolution of quantitative easing’s (QE) and tightening’s (QT) effects across consecutive announcements, we focus on their unexpected component. Treasury yield sensitivities to QE and QT supply surprises do not fall monotonically over time, thus later announcements seemed to remain powerful; yield sensitivities to QT surprises are on average larger than sensitivities to QE surprises, implying supply effects did not diminish during periods of market calm amid economic expansion; finally, yield sensitivities are amplified by the amount of interest-rate uncertainty prevailing before the announcement, implying that turning points in the balance sheet policy tended to elicit larger reactions.

Suggested Citation

  • Stefania D'Amico & Tim Seida, 2020. "Unexpected Supply Effects of Quantitative Easing and Tightening," Working Paper Series WP-2020-17, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:92698
    DOI: 10.21033/wp-2020-17
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    Cited by:

    1. Bin Wei, 2022. "How Many Rate Hikes Does Quantitative Tightening Equal?," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2022(11), July.

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    More about this item

    Keywords

    Balance sheet policy surprises; quantitative easing and tightening; asset supply effects;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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

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