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Quantifying the Costs and Benefits of Quantitative Easing

Author

Listed:
  • Andrew T. Levin
  • Brian L. Lu
  • William R. Nelson

Abstract

We conduct a systematic analysis of the costs and benefits of large-scale securities purchases, using the Federal Reserve’s QE4 program as a concrete example. This program was initiated at the onset of the pandemic in March 2020 and continued for two years, leading to a doubling of the Fed’s securities holdings to about $8.5 trillion as of March 2022. QE4 was initially aimed at mitigating strains in markets for Treasuries and agency mortgage-backed securities but was subsequently aimed more broadly at supporting market functioning and providing monetary stimulus. Nonetheless, QE4 did not have any notable benefits in reducing term premiums. Moreover, since the securities purchases were financed by expanding the Fed’s short-term liabilities, QE4 amplified the interest rate risk associated with the publicly-held debt of the consolidated federal government. Our simulation analysis indicates that QE4 is likely to reduce the Federal Reserve’s remittances to the U.S. Treasury by about $760 billion over the next ten years.

Suggested Citation

  • Andrew T. Levin & Brian L. Lu & William R. Nelson, 2022. "Quantifying the Costs and Benefits of Quantitative Easing," NBER Working Papers 30749, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:30749
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    Cited by:

    1. Michael Bleaney, 2024. "Did the Bank of England's quantitative easing programme become fiscally wasteful?," Discussion Papers 2024/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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