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

Author

Listed:
  • Engen, Eric M.

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Laubach, Thomas

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Reifschneider, David L.

    () (Board of Governors of the Federal Reserve System (U.S.))

Abstract

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.

Suggested Citation

  • Engen, Eric M. & Laubach, Thomas & Reifschneider, David L., 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 (US).
  • Handle: RePEc:fip:fedgfe:2015-05
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    File URL: http://dx.doi.org/10.17016/FEDS.2015.005
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    References listed on IDEAS

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    Citations

    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

    Citations

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    Cited by:

    1. Cavallo, Michele & Del Negro, Marco & Frame, W. Scott & Grasing, Jamie & Malin, Benjamin A. & Rosa, Carlo, 2018. "Fiscal Implications of the Federal Reserve's Balance Sheet Normalization," FRB Atlanta Working Paper 2018-7, Federal Reserve Bank of Atlanta.
    2. 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.
    3. 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.
    4. 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.
    5. Banegas, Ayelen & Montes-Rojas, Gabriel & Siga, Lucas, 2016. "Mutual Fund Flows, Monetary Policy and Financial Stability," Finance and Economics Discussion Series 2016-071, Board of Governors of the Federal Reserve System (US).
    6. Maarten van Rooij & Jakob de Haan, 2016. "Will helicopter money be spent? New evidence," DNB Working Papers 538, Netherlands Central Bank, Research Department.
    7. 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.
    8. 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.
    9. Michelle Bongard & Gabriele Galati & Richhild Moessner & William Nelson, 2016. "Connecting the dots: market reactions to forecasts of policy rates and forward guidance provided by the Fed," DNB Working Papers 523, Netherlands Central Bank, Research Department.
    10. repec:eee:jmacro:v:57:y:2018:i:c:p:338-349 is not listed on IDEAS
    11. Bua, Giovanna & Dunne, Peter G., 2017. "The Portfolio Rebalancing Effects of the ECB's Asset Purchase Programme," Research Technical Papers 07/RT/17, Central Bank of Ireland.
    12. 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.
    13. 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.).
    14. 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.

    More about this item

    Keywords

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

    JEL classification:

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

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