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Macroeconomic Effects of Quantitative Easing Using Mid-sized Bayesian Vector Autoregressions

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  • Maciej Stefański

Abstract

The paper estimates macroeconomic effects and decomposes transmission channels of quantitative easing in the United States using 15-variable Bayesian vector autoregressive model with stochastic search variable selection prior, distinguishing between Treasury bond purchases, mortgage-backed securities purchases and Operation Twist. A positive quantitative easing shock has a strong, negative impact on unemployment and no impact on prices, with Treasury purchases and Operation Twist found to be more effective than purchases of mortgage-backed securities. Opposite to the assumptions usually made in the literature, quantitative easing transmits to the real economy mostly via the stock market instead of long-term rates. Among numerous extensions to the baseline model, spillbacks are found to account for 40% of the impact of Treasury purchases on unemployment and commercial paper purchases have similar effects on the economy as purchases of Treasury bonds and mortgage-backed securities. However, baseline estimates are not found to be very robust, and thus substantial uncertainty regarding the macroeconomic effects of QE persists.

Suggested Citation

  • Maciej Stefański, 2021. "Macroeconomic Effects of Quantitative Easing Using Mid-sized Bayesian Vector Autoregressions," KAE Working Papers 2021-068, Warsaw School of Economics, Collegium of Economic Analysis.
  • Handle: RePEc:sgh:kaewps:2021068
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    More about this item

    Keywords

    unconventional monetary policy; large-scale asset purchases; QE; GDP; unemployment; United States; stochastic search variable selection; transmission channels; spillbacks; commercial paper.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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