Does Quantitative Easing Affect Market Liquidity?
The second round of large-scale asset purchases by the Federal Reserve—frequently referred to as QE2—included repeated purchases of Treasury inflation-protected securities (TIPS). To quantify the effect QE2 had on the functioning of the TIPS market and the related market for inflation swaps, we exploit the measure of combined liquidity premiums in TIPS yields and inflation swap rates derived by Christensen and Gillan (2012). We find that, on TIPS purchase dates, the liquidity premium dropped by 8 to 11 basis points depending on maturity, or about 50 percent. Furthermore, the effect was sustained on nonpurchase dates during most of the program, but dissipated towards its end.
|Date of creation:||2013|
|Date of revision:||Sep 2017|
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- Joseph Haubrich & George Pennacchi & Peter Ritchken, 2012.
"Inflation Expectations, Real Rates, and Risk Premia: Evidence from Inflation Swaps,"
Review of Financial Studies,
Society for Financial Studies, vol. 25(5), pages 1588-1629.
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- Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December. Full references (including those not matched with items on IDEAS)
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