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The Information Channel of Asset Purchases

Author

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  • Gaballo, Gaetano
  • Galli, Carlo

Abstract

We study central bank asset purchases (APs) in bond markets where rational investors face position limits and learn from private signals and market prices. APs affect information aggregation, altering the informativeness of prices and their sensitivity to fundamentals through an information channel distinct from risk-premium effects. Consistent with this mechanism, we find that U.S. Federal Reserve APs strengthened the pass-through of labor market news to Treasury yields. Dispersed beliefs and position limits also provide a microfoundation for the optimality of APs.

Suggested Citation

  • Gaballo, Gaetano & Galli, Carlo, 2026. "The Information Channel of Asset Purchases," CEPR Discussion Papers 21730, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21730
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    File URL: https://cepr.org/publications/DP21730
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    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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