How Many Rate Hikes Does Quantitative Tightening Equal?

Wei, Bin

doi:10.29338/ph2022-11

Journal Article

How Many Rate Hikes Does Quantitative Tightening Equal?

Abstract: In this article, I examine the question of how to quantify the equivalence between interest rate hikes and quantitative tightening (QT). Using a simple "preferred habit" model I estimate that a $2.2 trillion passive roll-off of nominal Treasury securities from the Federal Reserve's balance sheet over three years is equivalent to an increase of 29 basis points in the current federal funds rate at normal times, but 74 basis points during turbulent periods.

Keywords: monetary policy; quantitative tightening; QT; quantitative easing; QE; rate hikes; preferred-habitat;

JEL Classification: E43; E44; E52; E58; G12;

https://doi.org/10.29338/ph2022-11