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http://ssrn.com/abstract=1576596
 
 

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


Joseph Gagnon


Peterson Institute

Matthew Raskin


affiliation not provided to SSRN

Julie Remache


Federal Reserve Banks - Federal Reserve Bank of New York

Brian P. Sack


Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section

March 1, 2010

FRB of New York Staff Report No. 441

Abstract:     
Since December 2008, the Federal Reserve’s traditional policy instrument, the target federal funds rate, has been effectively at its lower bound of zero. In order to further ease the stance of monetary policy as the economic outlook deteriorated, the Federal Reserve purchased substantial quantities of assets with medium and long maturities. In this paper, we explain how these purchases were implemented and discuss the mechanisms through which they can affect the economy. We present evidence that the purchases led to economically meaningful and long-lasting reductions in longer-term interest rates on a range of securities, including securities that were not included in the purchase programs. These reductions in interest rates primarily reflect lower risk premiums, including term premiums, rather than lower expectations of future short-term interest rates.

Number of Pages in PDF File: 43

Keywords: Term Premium, Portfolio Balance, Zero Bound, Monetary Policy, Duration, Bond Yield

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

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Date posted: March 24, 2010  

Suggested Citation

Gagnon, Joseph and Raskin, Matthew and Remache, Julie and Sack, Brian P., Large-Scale Asset Purchases by the Federal Reserve: Did They Work? (March 1, 2010). FRB of New York Staff Report No. 441. Available at SSRN: http://ssrn.com/abstract=1576596 or http://dx.doi.org/10.2139/ssrn.1576596

Contact Information

Joseph Gagnon
Peterson Institute ( email )
1750 Massachusetts Avenue, NW
Washington, DC 20036
United States
HOME PAGE: http://www.piie.com
Matthew Raskin
affiliation not provided to SSRN ( email )
Julie Remache (Contact Author)
Federal Reserve Banks - Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
Brian P. Sack
Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section ( email )
20th and C Streets, NW
Washington, DC 20551
United States
202-736-5671 (Phone)
202-452-2301 (Fax)
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