Open-Ended Treasury Purchases: From Market Functioning to Financial Easing

D'Amico, Stefania; Gillet, Max; Schulhofer-Wohl, Sam; Seida, Tim

doi:10.59576/sr.1183

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Open-Ended Treasury Purchases: From Market Functioning to Financial Easing

Abstract: We assess whether the Fed’s asset purchases can be tailored to either restore market functioning or provide economic stimulus. When the communicated goal is restoring market functioning and purchases’ implementation is flexible, flow effects are significant: relative price deviations narrow. However, stock effects remain near zero and hence not stimulative. When the communicated goal links purchases to the achievement of the dual mandate, improving their size’s predictability, stock effects rise consistently above zero. When the communicated implementation improves the predictability of the purchases’ maturity composition, stock effects become large. Jointly, the communicated goal and implementation can shape the purchases’ effects.

JEL Classification: E43; E44; E52; E58;

https://doi.org/10.59576/sr.1183