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The macroeconomic effects of large-scale asset purchase programs

  • Han Chen
  • Vasco Cúrdia
  • Andrea Ferrero

We simulate the Federal Reserve second Large-Scale Asset Purchase program in a DSGE model with bond market segmentation estimated on U.S. data. GDP growth increases by less than a third of a percentage point and inflation barely changes relative to the absence of intervention. The key reasons behind our findings are small estimates for both the elasticity of the risk premium to the quantity of long-term debt and the degree of financial market segmentation. Absent the commitment to keep the nominal interest rate at its lower bound for an extended period, the effects of asset purchase programs would be even smaller.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2012-22.

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Date of creation: 2012
Date of revision:
Handle: RePEc:fip:fedfwp:2012-22
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  1. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  2. Robert E. Hall, 2011. "The Long Slump," American Economic Review, American Economic Association, vol. 101(2), pages 431-69, April.
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  14. Han Chen & Vasco Cúrdia & Andrea Ferrero, 2012. "The macroeconomic effects of large-scale asset purchase programs," Working Paper Series 2012-22, Federal Reserve Bank of San Francisco.
  15. Joseph E. Gagnon & Matthew Raskin & Julie Remache & Brian P. Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
  16. Wallace, Neil, 1981. "A Modigliani-Miller Theorem for Open-Market Operations," American Economic Review, American Economic Association, vol. 71(3), pages 267-74, June.
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