This literature attempts not only to quantify the effect of LSAPs
on different yields, but also to identify the channels through which these unconventional monetary policy interventions work.
In this article, QE, CE, and LSAPs
are considered synonymous.
More generally, according to the intermediary asset pricing theories emphasized by Tobias Adrian, Emanuel Moench, and Hyun Song Shin (2010) and by Zhiguo He and Krishnamurthy (2010), to the extent that LSAPs
work through intermediary balance sheets, they may influence the prices of a variety of assets in which such intermediaries specialize.
In this paper, we review the Federal Reserve's experience with implementing the LSAPs
through March 2010 and describe some of the challenges raised by such large purchases in a relatively short time.
In this article, we collect inflation data for nine advanced economies: three large advanced economies (the euro area, Japan, and the United States) and three small open economies (Sweden, Switzerland, and the United Kingdom)--all of which have implemented or are still implementing some form of program designed to increase the size of the central bank's balance sheet (such as large-scale asset purchases [LSAPs])--plus three small open economies without LSAP
programs (Canada, Denmark, and Norway).
Among the reasons offered are that 1) announcements convey information about a worse economic outlook than was previously expected, 2) greater uncertainty may accompany the use of LSAPs
and forward guidance, and 3) markets may be sufficiently segmented so that purchases of Treasuries have little effect on other asset prices.
According to the so-called portfolio balance channel, LSAPs
affect long-term interest rates by changing the quantity and mix of financial assets held by the public.
To preview the empirical results, when the trend is accounted for, there is little evidence of a statistically significant effect of the Fed's LSAPs
on yields and no evidence of an economically meaningful effect.
are an unconventional tool for the FOMC, their effectiveness remains uncertain due to several factors.
Housing GSE debt and MBS accounted for more than 80 percent of the assets purchased by the Federal Reserve in its first round of QE, or LSAPs
; these assets were directly linked to housing market credit.
However, as a result of the Federal Reserve's LSAPs
, which were conducted between 2009 and 2014 (gray-shaded regions), reserve balances grew over many quarters at varying rates.
Several central banks have used large-scale purchases of financial assets (LSAPs
) to ease financial conditions and support economic growth and inflation.