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Expectations of large-scale asset purchases

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  • Guangye Cao
  • Andrew Foerster

Abstract

During and after the recent financial crisis, the Federal Reserve turned to a number of unconventional tools to bolster the economy. The effectiveness of one such tool, large-scale asset purchases (LSAPs)?often referred to as quantitative easing?has been hard to measure. ; Efforts to estimate LSAP impact have often relied on an \\"event study\\" approach, focusing on short time intervals around the announcements of new LSAP programs. But these studies typically ignore the fact that financial market participants sometimes expect a given LSAP announcement in advance?and such expectations can affect interest rates prior to the time interval considered. ; Authors Foerster and Cao present evidence that LSAP announcements were often at least partially expected in advance, and they argue that event studies, by ignoring the effects of prior expectations, likely misestimate the impact of LSAPs.

Suggested Citation

  • Guangye Cao & Andrew Foerster, 2013. "Expectations of large-scale asset purchases," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-29.
    • Handle: RePEc:fip:fedker:y:2013:i:qii:n:v.98no.2:x:3
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    References listed on IDEAS

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    1. 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.
    2. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(s1), pages 3-46, February.
    3. Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
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    5. 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.
    6. 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.
    7. Taeyoung Doh, 2010. "The efficacy of large-scale asset purchases at the zero lower bound," Economic Review, Federal Reserve Bank of Kansas City, vol. 95(Q II), pages 5-34.
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    1. Georgios Chortareas & Menelaos Karanasos & Emmanouil Noikokyris, 2019. "Quantitative Easing And The Uk Stock Market: Does The Bank Of England Information Dissemination Strategy Matter?," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 569-583, January.
    2. De Rezende, Rafael B. & Ristiniemi, Annukka, 2023. "A shadow rate without a lower bound constraint," Journal of Banking & Finance, Elsevier, vol. 146(C).
    3. Hesse, Henning & Hofmann, Boris & Weber, James Michael, 2018. "The macroeconomic effects of asset purchases revisited," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 115-138.
    4. Nada Mora, 2014. "The weakened transmission of monetary policy to consumer loan rates," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 1-26.
    5. Brandt, Lennart & Saint Guilhem, Arthur & Schröder, Maximilian & Van Robays, Ine, 2021. "What drives euro area financial market developments? The role of US spillovers and global risk," Working Paper Series 2560, European Central Bank.
    6. Michael S. Miller & Jin W. Choi, 2014. "The Effectiveness of the Federal Funds Rate as the U.S. Monetary Policy Tool Before, During and After the Great Recession," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 37-58.
    7. Lhuissier Stéphane & Nguyen Benoît, 2021. "The Dynamic Effects of the ECB’s Asset Purchases: a Survey-Based Identification," Working papers 806, Banque de France.

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