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Large-scale asset purchases by the Federal Reserve: did they work?

  • Joseph E. Gagnon
  • Matthew Raskin
  • Julie Remache
  • Brian P. Sack

Since December 2008, the Federal Reserve's traditional policy instrument, the target federal funds rate, has been effectively at its lower bound of zero. In order to further ease the stance of monetary policy as the economic outlook deteriorated, the Federal Reserve purchased substantial quantities of assets with medium and long maturities. In this paper, we explain how these purchases were implemented and discuss the mechanisms through which they can affect the economy. We present evidence that the purchases led to economically meaningful and long-lasting reductions in longer-term interest rates on a range of securities, including securities that were not included in the purchase programs. These reductions in interest rates primarily reflect lower risk premiums, including term premiums, rather than lower expectations of future short-term interest rates.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 441.

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Date of creation: 2010
Date of revision:
Handle: RePEc:fip:fednsr:441
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  1. Mankiw, N. Gregory & Reis, Ricardo & Wolfers, Justin, 2003. "Disagreement about Inflation Expectations," Research Papers 1807, Stanford University, Graduate School of Business.
  2. Francis E. Warnock & Veronica C. Warnock, 2005. "International capital flows and U.S. interest rates," International Finance Discussion Papers 840, Board of Governors of the Federal Reserve System (U.S.).
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  4. Johannes C. Stroebel & John B. Taylor, 2009. "Estimated Impact of the Fed's Mortgage-Backed Securities Purchase Program," NBER Working Papers 15626, National Bureau of Economic Research, Inc.
  5. John Y. Campbell & Luis Viceira, 2005. "The Term Structure of the Risk-Return Tradeoff," NBER Working Papers 11119, National Bureau of Economic Research, Inc.
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  8. Dimitri Vayanos & Jean-Luc Vila, 2009. "A Preferred-Habitat Model of the Term Structure of Interest Rates," NBER Working Papers 15487, National Bureau of Economic Research, Inc.
  9. Eric T. Swanson, 2011. "Let’s twist again: a high-frequency event-study analysis of operation twist and its implications for QE2," Working Paper Series 2011-08, Federal Reserve Bank of San Francisco.
  10. Dimitri Vayanos & Robin Greenwood, 2008. "Bond Supply and Excess Bond Returns," FMG Discussion Papers dp607, Financial Markets Group.
  11. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
  12. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  13. Javier Andres & J. David López-Salido & Edward Nelson, 2004. "Tobin's imperfect asset substitution in optimizing general equilibrium," Working Papers 2004-003, Federal Reserve Bank of St. Louis.
  14. Kenneth Kuttner, 2006. "Can Central Banks Target Bond Prices?," NBER Working Papers 12454, National Bureau of Economic Research, Inc.
  15. Benjamin M. Friedman, 1981. "Debt Management Policy, Interest Rates, and Economic Activity," NBER Working Papers 0830, National Bureau of Economic Research, Inc.
  16. repec:oup:qjecon:v:100:y:1985:i:5:p:1041-65 is not listed on IDEAS
  17. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
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