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Flow effects of large-scale asset purchases


  • Kandrac, John
  • Schlusche, Bernd


How large-scale asset purchase (LSAP) programs affect financial markets is an important question for policy makers that face the zero lower bound. While so-called “stock effects”–that is, persistent shifts in asset prices observed as the result of an LSAP program–are relatively well documented in the literature, there has been little study of “flow effects” that may occur at the time of LSAP transactions. Using security-level transaction data related to four distinct programs over a period of roughly four years, we test for the presence of flow effects in both price and liquidity of Treasury securities. We show that flow effects in security prices were present during early LSAPs by the Federal Reserve, but they were of little economic significance. Alternatively, we find no evidence for systematic liquidity flow effects in any of the LSAP programs.

Suggested Citation

  • Kandrac, John & Schlusche, Bernd, 2013. "Flow effects of large-scale asset purchases," Economics Letters, Elsevier, vol. 121(2), pages 330-335.
  • Handle: RePEc:eee:ecolet:v:121:y:2013:i:2:p:330-335 DOI: 10.1016/j.econlet.2013.09.003

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    References listed on IDEAS

    1. Michael J. Fleming, 2003. "Measuring treasury market liquidity," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-108.
    2. Dong Lou & Hongjun Yan & Jinfan Zhang, 2013. "Anticipated and Repeated Shocks in Liquid Markets," Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 1891-1912.
    3. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," NBER Working Papers 17555, National Bureau of Economic Research, Inc.
    4. D’Amico, Stefania & King, Thomas B., 2013. "Flow and stock effects of large-scale treasury purchases: Evidence on the importance of local supply," Journal of Financial Economics, Elsevier, vol. 108(2), pages 425-448.
    5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    6. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
    7. Michael A. S. Joyce & Ana Lasaosa & Ibrahim Stevens & Matthew Tong, 2011. "The Financial Market Impact of Quantitative Easing in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 113-161, September.
    8. 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.
    9. 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.
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    Cited by:

    1. Schlepper, Kathi & Riordan, Ryan & Hofer, Heiko & Schrimpf, Andreas, 2017. "Scarcity effects of QE: A transaction-level analysis in the Bund market," Discussion Papers 06/2017, Deutsche Bundesbank.
    2. Kandrac, John & Schlusche, Bernd, 2017. "Quantitative Easing and Bank Risk Taking: Evidence from Lending," Finance and Economics Discussion Series 2017-125, Board of Governors of the Federal Reserve System (U.S.).
    3. W. Arrata & B. Nguyen, 2017. "Price impact of bond supply shocks: Evidence from the Eurosystem's asset purchase program," Working papers 623, Banque de France.
    4. De Santis, Roberto A. & Holm-Hadulla, Fédéric, 2017. "Flow effects of central bank asset purchases on euro area sovereign bond yields: evidence from a natural experiment," Working Paper Series 2052, European Central Bank.

    More about this item


    LSAP; Quantitative easing; Open market operations; Liquidity; Monetary policy;

    JEL classification:

    • 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
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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