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The Federal Reserve's Large-scale Asset Purchase Programmes: Rationale and Effects

Authors


  •  Corresponding author: Stefania D’Amico, Division of Monetary Affairs, Washington, DC 20551, USA. E-mail: stefania.d’amico@frb.gov.

  • For helpful comments on earlier versions of this article, we thank Mike Joyce, Thomas King, Elizabeth Klee, Canlin Li, Elmar Mertens, Dimitri Vayanos, Andrew Scott, Min Wei, Jonathan Wright and participants at the European Central Bank workshop, ‘Macroeconomic Impact of Nonstandard Monetary Policy Measures’ (March 2011), at the Seventh Meeting of Central Bank Monetary Policy Managers, Rio de Janeiro (April 2011), and at the Bank of England conference on ‘QE and Other Unconventional Monetary Policies’ (November 2011). We also thank seminar participants at the Bank of England and the IMF, as well as numerous colleagues at the Federal Reserve Board. D’Amico also acknowledges the hospitality of the Macrofinancial Analysis Division at the Bank of England. Benjamin Brookins, Christine Garnier, Andrew Giffin, Shenje Hshieh and John Sears provided research assistance. The views expressed in this article are those of the authors alone and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System or its staff.

Abstract

We provide empirical estimates of the effect of large-scale asset purchases (LSAPs) on longer term US Treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred-habitat literature and the duration channel associated with interest-rate risk. We also clarify LSAPs’ role in the broader context of historical monetary policy strategy. Results indicate that LSAP-style operations mainly impact longer term rates via the nominal term premium; within that premium, the response is predominantly embodied in the real term premium. The scarcity and duration channels both seem to be of considerable importance.

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