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Working Paper
QE: when and how should the Fed exit?
Wen, Yi (2014-07-21)
The essence of Quantitative Easing (QE) is to reduce the costs of private borrowing through large-scale purchases of privately issue debts, instead of public debts (Ben Bernanke, 2009). Notwithstanding the effectiveness of this highly unconventional monetary policy in reviving private investment and the economy, it is time to think about the likely impacts of the unwinding of QE (or the reversed private-asset purchases) on the economy. In a standard economic model, if monetary injections can increase aggregate output and employment, then the reversed action will likely undo such effects. ...
Working Papers , Paper 2014-16

Journal Article
The Fed Is Shrinking Its Balance Sheet. What Does That Mean?
Sablik, Timothy (2022-07)
When the COVID-19 pandemic hit the United States in early March 2020, the Fed quickly stepped in to limit the economic fallout. It reduced its interest rate target to near zero and purchased large quantities of U.S. Treasury bonds and mortgage-backed securities (MBS) by injecting reserves into the banking system. As a result of these purchases, the size of the Fed's balance sheet more than doubled from about $4 trillion prior to the pandemic to nearly $9 trillion at the start of 2022.
Econ Focus , Volume 22 , Issue 3Q , Pages 4-7

Report
Managing Monetary Policy Normalization
Benigno, Gianluca; Benigno, Pierpaolo (2022-05-01)
We propose a new framework for monetary policy analysis to study monetary policy normalization when exiting a liquidity trap. The optimal combination of reserves and interest rate policy requires an increase in liquidity (reserves) a few quarters after the policy rate is set at the effective lower bound. Removal of accommodation requires that quantitative tightening starts before the liftoff of the policy rate. Moreover, the withdrawal of liquidity takes place at a very slow pace relative to the normalization of the policy rate.
Staff Reports , Paper 1015

Report
Unconventional Monetary Policies and Inequality
Lee, Donggyu (2024-07-01)
This paper examines the effects of unconventional monetary policies on household welfare across the wealth distribution following the Great Recession. Using a heterogeneous agent New Keynesian model, estimated with Bayesian methods, I analyze how forward guidance and quantitative easing affected inequality during this period. The findings show that while these policies boosted economic activity and benefited all households, they had non-linear distributional effects. Unconventional monetary policies reduced inequality within the bottom 90 percent by lowering unemployment but widened the ...
Staff Reports , Paper 1108

Working Paper
Private and Public Liquidity Provision in Over-the-Counter Markets
Arseneau, David M.; Vardoulakis, Alexandros; Rappoport, David (2017-03-29)
We show that trade frictions in OTC markets result in inefficient private liquidity provision. We develop a dynamic model of market-based financial intermediation with a two-way interaction between primary credit markets and secondary OTC markets. Private allocations are generically inefficient because investors and firms fail to internalize how their actions affect liquidity in secondary markets. This inefficiency can lead to liquidity that is suboptimally low or high compared to the second best. Our analysis provides a rationale for the regulation and public provision of liquidity and the ...
Finance and Economics Discussion Series , Paper 2017-033

Working Paper
How Persistent Are Unconventional Monetary Policy Effects?
Neely, Christopher J. (2020-11-08)
This paper argues that one cannot precisely estimate the persistence of unconventional monetary policy (UMP) effects, especially with short samples and few observations. To make this point, we illustrate that the most influential model on the topic exhibits structural instability, and sensitivity to specification and outliers that render the conclusions unreliable. Restricted models that respect more plausible asset return predictability are more stable and imply that UMP shocks were persistent. Estimates of the dynamic effects of shocks should respect the limited predictability in asset ...
Working Papers , Paper 2014-04

Working Paper
Measuring Monetary Policy Spillovers between U.S. and German Bond Yields
De Pooter, Michiel; Curcuru, Stephanie E.; Eckerd, George (2018-04)
In this paper we estimate the magnitude of spillovers between bond markets in the U.S. and Germany following monetary policy communications by the FOMC and the ECB. The identification of policy-related co-movements following FOMC announcements, in particular, can be difficult because many foreign bond markets, including those in Germany, are closed at the time of the announcement. To address this issue we use intraday futures market data to estimate spillovers during a narrow and overlapping event window. We find that about half of the reaction in German domestic yields spills over to U.S. ...
International Finance Discussion Papers , Paper 1226

Discussion Paper
Should Emerging Economies Embrace Quantitative Easing during the Pandemic?
Benigno, Gianluca; Hartley, Jonathan; Garcia Herrero, Alicia; Rebucci, Alessandro; Ribakova, Elina (2020-10-02)
Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis ...
Liberty Street Economics , Paper 20201002

Journal Article
Time to Unwind
Fessenden, Helen (2017-07)
This fall, the Fed is taking initial steps to unwind a signature post-recession stimulus policy by trimming back its massive balance sheet.
Econ Focus , Issue 3Q , Pages 30-30

Working Paper
Optimal Monetary Policy under Negative Interest Rate
Wen, Yi; Dong, Feng (2017-05-16)
In responding to the extremely weak global economy after the financial crisis in 2008, many industrial nations have been considering or have already implemented negative nominal interest rate policy. This situation raises two important questions for monetary theories: (i) Given the widely held doctrine of the zero lower bound on nominal interest rate, how is a negative interest rate (NIR) policy possible? (ii) Will NIR be effective in stimulating aggregate demand? (iii) Are there any new theoretical issues emerging under NIR policies? This article builds a model to show that (i) money ...
Working Papers , Paper 2017-19

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