Large-Scale Asset Purchases by the Federal Reserve: Did They Work?

Abstract

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Financing US Debt: Is There Enough Money in the World – and at What Cost?

“…The results in the estimated equation of line 4 generally conform to prior estimates in the literature for the effects of the budget deficit on long-term Treasury yields -and for the effect of the change in foreign official holdings, as well. The estimated effect is 35 basis points on the ten-year yield relative to the short-term yield for each one percentage point of GDP for the structural budget deficit -a result that lines up with the estimates from Gale and Orszag (2002, Gagnon et al (2010), who estimated that the effect of the first-round LSAP was in the range of 38-82 basis points (although standard errors of the coefficient estimates indicate a degree of imprecision that allows for overlapping confidence intervals at typical levels). 19 The summary regression statistics for the line 4 equation are also generally good, with an adjusted R 2 of 0.685, a Durbin-Watson of 1.91 and a standard error of the regression of just under 0.7 percentage point.…”

“…The relationships presented here therefore provide information for why the term spread is not always a clear predictor for subsequent economic activity. 13 Gagnon et al (2010) found the LSAP reduced US long yields during implementation. the change in Fed holdings of long-term (more than five years) Treasuries, US government agency and MBS as a percent of potential GDP.…”

Liquidity, Term Spreads and Monetary Policy

“…These QE policies comprised the purchase of mortgage-backed securities, Treasuries and 'Agencies' from the private sector. Gagnon et al (2011) analyse the effectiveness of the large-scale assets purchases conducted by the FED. They find that the purchase programme led to reductions in long-term interest rates on a range of securities, including some securities that were not included in the purchase programme, indicating that portfolio balancing effects were in play.…”

The Effectiveness of Non-Traditional Monetary Policy Measures: The Case of the Bank of Japan*

“…22 The Table shows that interest rates declined across the board fairly substantially on key monetary policy announcement dates. Taken at face value, the November 2008 announcement to purchase MBS and Agency debt, QE1, led to declines in not just MBS rates but also to those of Treasuries and corporate 20 Examples are D'Amico and King (2010), Gagnon et al (2010), Krishnamurthy and Vissing-Jorgensen (2011) and Yellen (2011). 21 Lam (2011) has recently conducted an even study analysis of the BOJ's policy measures and obtained results similar to those in the current paper.…”