IDEAS home Printed from https://ideas.repec.org/p/iie/pbrief/pb16-4.html
   My bibliography  Save this paper

Quantitative Easing: An Underappreciated Success

Author

Listed:
  • Joseph E. Gagnon

    () (Peterson Institute for International Economics)

Abstract

After short-term interest rates in many advanced economies fell below 1 percent, central banks turned to quantitative easing (QE) to support economic growth. They purchased massive and unprecedented amounts of long-term bonds in an effort to reduce long-term borrowing costs. Nevertheless, recovery from the Great Recession proved disappointingly slow. Recently, some central banks have pushed short-term interest rates slightly below zero to provide an additional boost to growth. The slow recovery and the turn to negative rates have raised questions about the benefits of QE bond purchases and whether their effectiveness has reached a limit. Gagnon reviews the outpouring of research on QE and its effects and finds overwhelming evidence that QE does ease financial conditions and supports economic growth. The channels are similar to those of conventional monetary policy. QE can be especially powerful during times of financial stress, but it has a significant effect in normal times with no observed diminishing returns. Rarely, if ever, have economists studying a specific question reached such a widely held consensus so quickly. But this consensus has yet to spread more broadly within the economics profession or the wider world.

Suggested Citation

  • Joseph E. Gagnon, 2016. "Quantitative Easing: An Underappreciated Success," Policy Briefs PB16-4, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb16-4
    as

    Download full text from publisher

    File URL: https://piie.com/publications/policy-briefs/quantitative-easing-underappreciated-success
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stefania D’Amico & William English & David López‐Salido & Edward Nelson, 2012. "The Federal Reserve's Large‐scale Asset Purchase Programmes: Rationale and Effects," Economic Journal, Royal Economic Society, vol. 122(564), pages 415-446, November.
    2. Glick, Reuven & Leduc, Sylvain, 2012. "Central bank announcements of asset purchases and the impact on global financial and commodity markets," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2078-2101.
    3. Jens H. E. Christensen & Glenn D. Rudebusch, 2016. "Modeling Yields at the Zero Lower Bound: Are Shadow Rates the Solution?," Advances in Econometrics,in: Dynamic Factor Models, volume 35, pages 75-125 Emerald Publishing Ltd.
    4. D’Amico, Stefania & King, Thomas B., 2013. "Flow and stock effects of large-scale treasury purchases: Evidence on the importance of local supply," Journal of Financial Economics, Elsevier, vol. 108(2), pages 425-448.
    5. Johannes Stroebel & John B. Taylor, 2012. "Estimated Impact of the Federal Reserve’s Mortgage-Backed Securities Purchase Program," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 1-42, June.
    6. Robin Greenwood & Dimitri Vayanos, 2014. "Bond Supply and Excess Bond Returns," Review of Financial Studies, Society for Financial Studies, vol. 27(3), pages 663-713.
    7. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 3-46, February.
    8. repec:chb:bcchsb:v24c04pp105-130 is not listed on IDEAS
    9. Motto, Roberto & Altavilla, Carlo & Carboni, Giacomo, 2015. "Asset purchase programmes and financial markets: lessons from the euro area," Working Paper Series 1864, European Central Bank.
    10. Ichiro Fukunaga & Naoya Kato & Junko Koeda, 2015. "Maturity Structure and Supply Factors in Japanese Government Bond Markets," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 33, pages 45-96, November.
    11. Jens H. E. Christensen & Glenn D. Rudebusch, 2012. "The Response of Interest Rates to US and UK Quantitative Easing," Economic Journal, Royal Economic Society, vol. 122(564), pages 385-414, November.
    12. Jonathan H. Wright, 2012. "What does Monetary Policy do to Long‐term Interest Rates at the Zero Lower Bound?," Economic Journal, Royal Economic Society, vol. 122(564), pages 447-466, November.
    13. Michael A. S. Joyce & Ana Lasaosa & Ibrahim Stevens & Matthew Tong, 2011. "The Financial Market Impact of Quantitative Easing in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 113-161, September.
    14. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
    15. Eric T. Swanson, 2016. "Measuring the Effects of Unconventional Monetary Policy on Asset Prices," Central Banking, Analysis, and Economic Policies Book Series,in: Elías Albagli & Diego Saravia & Michael Woodford (ed.), Monetary Policy through Asset Markets: Lessons from Unconventional Measures and Implications for an Integrated World, edition 1, volume 24, chapter 4, pages 105-130 Central Bank of Chile.
    16. Churm, Rohan & Joyce, Mike & Kapetanios, George & Theodoridis, Konstantinos, 2015. "Unconventional monetary policies and the macroeconomy: the impact of the United Kingdom's QE2 and Funding for Lending Scheme," Bank of England working papers 542, Bank of England.
    17. Canlin Li & Min Wei, 2012. "Term structure modelling with supply factors and the Federal Reserve's Large Scale Asset Purchase programs," Finance and Economics Discussion Series 2012-37, Board of Governors of the Federal Reserve System (U.S.).
    18. Jack Meaning & Feng Zhu, 2012. "The impact of Federal Reserve asset purchase programmes: another twist," BIS Quarterly Review, Bank for International Settlements, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Relying on the Fed's Balance Sheet
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-02-26 12:56:17

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arteta, Carlos & Kose, Ayhan & Stocker, Marc & Taskin, Temel, 2016. "Negative Interest Rate Policies: Sources and Implications," CEPR Discussion Papers 11433, C.E.P.R. Discussion Papers.
    2. repec:eee:jmacro:v:54:y:2017:i:pa:p:90-99 is not listed on IDEAS
    3. repec:nzb:nzbbul:may2018:4 is not listed on IDEAS
    4. Andreea-Emanuela Drăgoi & Ana-Cristina Bâlgăr, 2016. "Quantitative Easing Limits. Evidence From Japan," Romanian Economic Business Review, Romanian-American University, vol. 11(4), pages 60-70, december.
    5. Domenico Lombardi & Pierre L. Siklos & Samantha St. Amand, 2017. "Government bond yields at the effective lower bound: International evidence," CAMA Working Papers 2017-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. repec:kap:iecepo:v:14:y:2017:i:4:d:10.1007_s10368-016-0356-0 is not listed on IDEAS
    7. Benjamin Garcia & Arsenios Skaperdas, "undated". "Inferring the Shadow Rate from Real Activity," Finance and Economics Discussion Series 2017-106, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iie:pbrief:pb16-4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster). General contact details of provider: http://edirc.repec.org/data/iieeeus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.