On the Transactions Costs of Quantitative Easing

32 Pages Posted: 22 Jul 2016

See all articles by Francis Breedon

Francis Breedon

University of London, Queen Mary - School of Economics and Finance

Philip Turner

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: July 2016

Abstract

Most quantitative easing programmes primarily involve central banks acquiring government liabilities in return for central bank reserves. In all cases this process is undertaken by purchasing these liabilities in the secondary market rather than directly from the government. Yet the only practical difference between secondary market purchases and bilateral central bank/Treasury operations is the transactions costs involved in market operations. This paper quantifies the significant cost of this round-trip transaction - government issuance of liabilities and then central bank purchase of those liabilities in the secondary market.

Keywords: Quantitative Easing, auctions, bond interest rates, central bank balance sheets, exit strategy

JEL Classification: D44, E42, E52, E58, G12

Suggested Citation

Breedon, Francis and Turner, Philip, On the Transactions Costs of Quantitative Easing (July 2016). BIS Working Paper No. 571. Available at SSRN: https://ssrn.com/abstract=2812862

Francis Breedon (Contact Author)

University of London, Queen Mary - School of Economics and Finance ( email )

Mile End Road
London, E1 4NS
United Kingdom

Philip Turner

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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