Flow Effects of Large-Scale Asset Purchases

14 Pages Posted: 20 Jul 2013 Last revised: 27 Mar 2017

See all articles by John Kandrac

John Kandrac

Board of Governors of the Federal Reserve System

Bernd Schlusche

Board of Governors of the Federal Reserve System

Date Written: July 10, 2013

Abstract

How large-scale asset purchase (LSAP) programs affect financial markets is an important question for policy makers that face the zero lower bound. In this paper, we analyze so-called “flow effects” that may occur at the time of LSAP transactions. Using security-level transaction data related to four distinct programs over a period of roughly four years, we test for the presence of flow effects in both price and liquidity of Treasury securities. We show that flow effects in security prices are present during early LSAPs by the Federal Reserve, but they are of little economic significance. Alternatively, we find no evidence for systematic liquidity flow effects in any of the LSAP programs.

Keywords: LSAP, Quantitative Easing, Open Market Operations, Liquidity, Monetary Policy

JEL Classification: E52, E58, E65, G12

Suggested Citation

Kandrac, John and Schlusche, Bernd, Flow Effects of Large-Scale Asset Purchases (July 10, 2013). Available at SSRN: https://ssrn.com/abstract=2296121 or http://dx.doi.org/10.2139/ssrn.2296121

John Kandrac

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Bernd Schlusche (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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