The Macroeconomic Impact of Unconventional Monetary Policy Shocks
With the Federal Funds rate approaching the zero lower bound, the U.S. Federal Reserve adopted a range of unconventional monetary policy measures known as quantitative Easing (QE). Quantifying the impact QE has on the real economy, however, is not straightforward as standard tools such as VAR models cannot easily be applied. In this paper we use the Qual VAR model (Dueker, 2005) to combine binary information about QE announcements with an otherwise standard monetary policy VAR. The model filters an unobservable propensity to QE out of the observable data and delivers impulse responses to a QE shocks. In contrast to other empirical approaches, QE is endogenously depending on the business cycle, can easily be studied in terms of unexpected policy shocks and its dynamic effects can be compared to a conventional monetary easing. We show that QE shocks have a large impact on real and nominal interest rates and financial conditions and a smaller impact on real activity.
|Date of creation:||2014|
|Publication status:||Forthcoming in|
|Contact details of provider:|| Postal: Universitätsstraße 25, 35037 Marburg|
Web page: http://www.uni-marburg.de/fb02/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fawley, Brett W. & Neely, Christopher J., 2013. "Four stories of quantitative easing," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 51-88.
- Michael J. Dueker, 2003.
"Dynamic forecasts of qualitative variables: a Qual VAR model of U.S. recessions,"
2001-012, Federal Reserve Bank of St. Louis.
- Michael Dueker, 2005. "Dynamic Forecasts of Qualitative Variables: A Qual VAR Model of U.S. Recessions," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 96-104, January.
- 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.
- James D. Hamilton & Jing Cynthia Wu, 2011.
"The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment,"
NBER Working Papers
16956, National Bureau of Economic Research, Inc.
- 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, 02.
- Michael J. Dueker & Katrin Wesche, 2005.
"Forecasting macro variables with a Qual VAR business cycle turning point index,"
2001-019, Federal Reserve Bank of St. Louis.
- Michael Dueker & Katrin Assenmacher-Wesche, 2010. "Forecasting macro variables with a Qual VAR business cycle turning point index," Applied Economics, Taylor & Francis Journals, vol. 42(23), pages 2909-2920.
- Christiane Baumeister & Luca Benati, 2013.
"Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 9(2), pages 165-212, June.
- Christiane Baumeister & Luca Benati, 2012. "Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound," Staff Working Papers 12-21, Bank of Canada.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- D'Amico, Stefania & English, William & López-Salido, J David & Nelson, Edward, 2012.
"The Federal Reserve’s Large-Scale Asset Purchase Programs: Rationale and Effects,"
CEPR Discussion Papers
9145, C.E.P.R. Discussion Papers.
- 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.
- Stefania D'Amico & William B. English & David López-Salido & Edward Nelson, 2012. "The Federal Reserve's large-scale asset purchase programs: rationale and effects," Finance and Economics Discussion Series 2012-85, Board of Governors of the Federal Reserve System (U.S.).
- Heike Schenkelberg & Sebastian Watzka, 2011.
"Real Effects of Quantitative Easing at the Zero-Lower Bound: Structural VAR-based Evidence from Japan,"
CESifo Working Paper Series
3486, CESifo Group Munich.
- Schenkelberg, Heike & Watzka, Sebastian, 2013. "Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 327-357.
- Watzka, Sebastian & Schenkelberg, Heike, 2011. "Real effects of Quantitative Easing at the Zero-Lower Bound: Structural VAR-based evidence from Japan," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48687, Verein für Socialpolitik / German Economic Association.
- Schenkelberg, Heike & Watzka, Sebastian, 2013. "Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan," Munich Reprints in Economics 19757, University of Munich, Department of Economics.
- Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
- Qianying Chen & Andrew Filardo & Dong He & Feng Zhu, 2012. "International spillovers of central bank balance sheet policies," BIS Papers chapters, in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 220-264 Bank for International Settlements.
- 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.
When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201426. 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: (Bernd Hayo)
If references are entirely missing, you can add them using this form.