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On the macroeconomic effects of reinvestments in asset purchase programmes

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  • Gerke, Rafael
  • Kienzler, Daniel
  • Scheer, Alexander

Abstract

A feature of recent monetary policy asset purchase programmes is the reinvestment policy: the central bank announces to keep the overall volume of assets on its balance sheet constant for some time. In this paper, we systematically assess the macroeconomic effects of such reinvestment policies. Conceptually, monetary policy can achieve a given macroeconomic stimulus by substituting higher overall volumes (more net purchases) with longer reinvestments. Quantitatively, we find that omitting reinvestments in a programme that embeds key features of the Eurosystem's pandemic emergency purchase programme reduces the effect on inflation by roughly one third. Stochastic simulations reveal that reinvestment policies can be applied to mitigate the constraints of upper purchase limits. Introducing bounded rationality attenuates the effects of reinvestment policies.

Suggested Citation

  • Gerke, Rafael & Kienzler, Daniel & Scheer, Alexander, 2022. "On the macroeconomic effects of reinvestments in asset purchase programmes," Discussion Papers 47/2022, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:472022
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    More about this item

    Keywords

    Reinvestment; Stock effect; State-dependent asset purchases; Cognitive discounting; Bayesian estimation;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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