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Evaluating unconventional monetary policies -why aren’t they more effective?

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  • Yi Wen

Abstract

We use a general equilibrium finance model that features explicit government purchases of private debts to shed light on some of the principal working mechanisms of the Federal Reserve?s large-scale asset purchases (LSAP) and their macroeconomic effects. Our model predicts that unless private asset purchases are highly persistent and extremely large (on the order of more than 50% of annual GDP), money injections through LSAP cannot effectively boost aggregate output and employment even if inflation is fully anchored and the real interest rate significantly reduced. Our framework also sheds light on some long- standing financial puzzles and monetary policy questions facing central banks around the world, such as (i) the fight to liquidity under a credit crunch and debt crisis, (ii) the liquidity trap, (iii) the inverted yield curve, and (iv) the low inflation puzzle under quantitative easing.

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  • Yi Wen, 2013. "Evaluating unconventional monetary policies -why aren’t they more effective?," Working Papers 2013-028, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2013-028
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    Cited by:

    1. Steven H. KIM, 2016. "On the Economic Returns From a Global Program of Social Capital: A Trillion Dollar Agenda for Growth," Journal of Economics and Political Economy, KSP Journals, vol. 3(4), pages 720-730, December.
    2. Bozhechkova, A.V. (Божечкова, А.В.) & Sinelnikova-Muryleva, Elena Vladimirovna (Синельникова-Мурылева, Елена Владимировна), 2016. "The Impact of Higher Interest Rates on Loans to the Economic Growth of the Russian Federation in the Current Environment [Влияние Высоких Процентных Ставок По Заимствованиям На Экономический Рост Р," Working Papers 21310, Russian Presidential Academy of National Economy and Public Administration.
    3. Yi Wen, 2014. "When and how to exit quantitative easing?," Review, Federal Reserve Bank of St. Louis, vol. 96(3), pages 243-265.

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    Keywords

    Monetary policy; Liquidity (Economics); Inflation (Finance);
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