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The Macroeconomic Effects of the Federal Reserve's Unconventional Monetary Policies

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After reaching the effective lower bound for the federal funds rate in late 2008, the Federal Reserve turned to two unconventional policy tools--quantitative easing and increasingly explicit and forward-leaning guidance for the future path of the federal funds rate--in order to provide additional monetary policy accommodation. We use survey data from the Blue Chip Economic Indicators to infer changes in private-sector perceptions of the implicit interest rate rule that the Federal Reserve would use following liftoff from the effective lower bound. Using our estimates of the changes over time in private expectations for the implicit policy rule, and estimates of the effects of the Federal Reserve's quantitative easing programs on term premiums derived from other studies, we simulate the FRB/US model to assess the actual economic stimulus provided by unconventional policy since early 2009. Our analysis suggests that the net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case. Our analysis implies that the peak unemployment effect--subtracting 1-1/4 percentage points from the unemployment rate relative to what would have occurred in the absence of the unconventional policy actions--does not occur until early 2015, while the peak inflation effect--adding 1/2 percentage point to the inflation rate--is not anticipated until early 2016.

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  • Eric M. Engen & Thomas Laubach & David L. Reifschneider, 2015. "The Macroeconomic Effects of the Federal Reserve's Unconventional Monetary Policies," Finance and Economics Discussion Series 2015-5, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2015-05
    DOI: 10.17016/FEDS.2015.005
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Quels sont les effets macroéconomiques des mesures non conventionnelles de la Fed ?
      by Martin Anota in D'un champ l'autre on 2015-03-01 02:26:17
    2. Unconventional monetary policy through the Fed's rear-view mirror
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2015-12-07 19:27:17
    3. Unconventional monetary policy through the Fed’s rear-view mirror
      by Barry Ritholtz in The Big Picture on 2015-12-14 16:00:35
    4. The Fed: From forward guidance to data dependence
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2015-12-14 19:45:45

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    Cited by:

    1. Christian Pfister & Jean-Guillaume Sahuc, 2020. "Unconventional monetary policies: A stock-taking exercise," Revue d'économie politique, Dalloz, vol. 130(2), pages 137-169.
    2. Buch, Claudia M. & Bussierè, Matthieu & Goldberg, Linda & Hills, Robert, 2019. "The international transmission of monetary policy," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 29-48.
    3. Fabo, Brian & Jančoková, Martina & Kempf, Elisabeth & Pástor, Ľuboš, 2021. "Fifty shades of QE: Comparing findings of central bankers and academics," Journal of Monetary Economics, Elsevier, vol. 120(C), pages 1-20.
    4. Günter Coenen & Carlos Montes-Galdón & Frank Smets, 2019. "Effects of State-Dependent Forward Guidance, Large-Scale Asset Purchases and Fiscal Stimulus in a Low-Interest-Rate Environment," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/983, Ghent University, Faculty of Economics and Business Administration.
    5. Michele Cavallo & Marco Del Negro & W. Scott Frame & Jamie Grasing & Benjamin A. Malin & Carlo Rosa, 2019. "Fiscal Implications of the Federal Reserve's Balance Sheet Normalization," International Journal of Central Banking, International Journal of Central Banking, vol. 15(5), pages 255-306, December.
    6. Alan Blinder & Michael Ehrmann & Jakob de Haan & David-Jan Jansen, 2017. "Necessity as the mother of invention: monetary policy after the crisis," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 707-755.
    7. Michelle Bongard & Gabriele Galati & Richhild Moessner & William Nelson, 2021. "Connecting the dots: Market reactions to forecasts of policy rates and forward guidance provided by the Fed," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 684-706, January.
    8. Grace Taylor & Rod Tyers, 2017. "Secular Stagnation: Determinants and Consequences for Australia," The Economic Record, The Economic Society of Australia, vol. 93(303), pages 615-650, December.
    9. Eksi, Ozan & Tas, Bedri Kamil Onur, 2017. "Unconventional monetary policy and the stock market’s reaction to Federal Reserve policy actions," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 136-147.
    10. Carlo Altavilla & Domenico Giannone, 2017. "The Effectiveness of Non‐Standard Monetary Policy Measures: Evidence from Survey Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(5), pages 952-964, August.
    11. Kyungmin Kim & Thomas Laubach & Min Wei, 2020. "Macroeconomic Effects of Large-Scale Asset Purchases: New Evidence," Finance and Economics Discussion Series 2020-047, Board of Governors of the Federal Reserve System (U.S.).
    12. Sarah Mouabbi & Jean‐Guillaume Sahuc, 2019. "Evaluating the Macroeconomic Effects of the ECB's Unconventional Monetary Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(4), pages 831-858, June.
    13. Crowley, Patrick M. & Hallett, Andrew Hughes, 2018. "What causes business cycles to elongate, or recessions to intensify?," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 338-349.
    14. Stephanie E. Curcuru & Michiel De Pooter & George Eckerd, 2018. "Measuring Monetary Policy Spillovers between U.S. and German Bond Yields," International Finance Discussion Papers 1226, Board of Governors of the Federal Reserve System (U.S.).
    15. Giovanna Bua & Peter G. Dunne, 2019. "The Portfolio Rebalancing Effects of the ECB's Asset Purchase Programme," International Journal of Central Banking, International Journal of Central Banking, vol. 15(5), pages 1-46, December.
    16. Ronald Heijmans & Richard Heuver & Zion Gorgi, 2016. "How to monitor the exit from the Eurosystem's unconventional monetary policy: Is EONIA dead and gone?," DNB Working Papers 504, Netherlands Central Bank, Research Department.
    17. Kenourgios, Dimitris & Papadamou, Stephanos & Dimitriou, Dimitrios & Zopounidis, Constantin, 2020. "Modelling the dynamics of unconventional monetary policies’ impact on professionals’ forecasts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    18. Ayelen Banegas & Gabriel Montes-Rojas & Lucas Siga, 2016. "Mutual Fund Flows, Monetary Policy and Financial Stability," Finance and Economics Discussion Series 2016-071, Board of Governors of the Federal Reserve System (U.S.).
    19. Benlaria Houcine & Abderrahmane Abdelkader & Oualid Lachi, 2020. "The Impact of Unconventional Monetary Policy Tools on Inflation Rates in the USA," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(6), pages 628-643, June.
    20. Jane Ihrig & Elizabeth Klee & Canlin Li & Min Wei & Joe Kachovec, 2018. "Expectations about the Federal Reserve’s Balance Sheet and the Term Structure of Interest Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 14(2), pages 341-391, March.
    21. Maarten van Rooij & Jakob de Haan, 2016. "Will helicopter money be spent? New evidence," DNB Working Papers 538, Netherlands Central Bank, Research Department.
    22. Rostagno, Massimo & Altavilla, Carlo & Carboni, Giacomo & Lemke, Wolfgang & Motto, Roberto & Saint Guilhem, Arthur, 2021. "Combining negative rates, forward guidance and asset purchases: identification and impacts of the ECB’s unconventional policies," Working Paper Series 2564, European Central Bank.
    23. Breitenlechner, Max & Gründler, Daniel & Scharler, Johann, 2021. "Unconventional monetary policy announcements and information shocks in the U.S," Journal of Macroeconomics, Elsevier, vol. 67(C).
    24. Carlos Garriga & Aaron Hedlund, 2019. "Crises in the Housing Market: Causes, Consequences, and Policy Lessons," Working Papers 2019-33, Federal Reserve Bank of St. Louis.
    25. Maria Sole Pagliari, 2021. "Does one (unconventional) size fit all? Effects of the ECB's unconventional monetary policies on the euro area economies," Working papers 829, Banque de France.

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    More about this item

    Keywords

    Monetary policy reaction function; federal funds rate; forward guidance; large-scale asset purchases; zero lower bound;
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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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