A Structural Investigation of Quantitative Easing

49 Pages Posted: 13 Aug 2020

See all articles by Gavin Goy

Gavin Goy

De Nederlandsche Bank

Felix Strobel

Deutsche Bundesbank

Gregor Boehl

University Bonn

Date Written: August 4, 2020

Abstract

Did the Federal Reserves' Quantitative Easing (QE) in the aftermath of the financial crisis have macroeconomic effects? To answer this question, we estimate a large-scale DSGE model over the sample from 1998 until 2020, including data of the Fed's balance sheet. We allow for QE to affect the economy via multiple channels that arise from several financial frictions. Our nonlinear Bayesian likelihood approach fully accounts for the zero lower bound on nominal interest rates. We find that QE increased output by about 1.2 percent, reflecting a net increase in investment of nearly 9 percent accompanied by a 0.7 percent drop in aggregate consumption. Both government bond and capital asset purchases effectively improved financing conditions. Especially capital asset purchases significantly facilitated new investment and increased the production capacity. Against the backdrop of a fall in consumption, supply side effects dominated, leading to a disinflationary effect of about 0.25 percent annually.

Keywords: Quantitative Easing, Liquidity Facilities, Zero Lower Bound, Nonlinear Bayesian Estimation

JEL Classification: E63, C63, E58, E32, C62

Suggested Citation

Goy, Gavin and Strobel, Felix and Boehl, Gregor, A Structural Investigation of Quantitative Easing (August 4, 2020). De Nederlandsche Bank Working Paper No. 691, Available at SSRN: https://ssrn.com/abstract=3668257 or http://dx.doi.org/10.2139/ssrn.3668257

Gavin Goy

De Nederlandsche Bank ( email )

Westeinde 1
1017 ZN Amsterdam
Netherlands

HOME PAGE: http://https://www.dnb.nl

Felix Strobel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Gregor Boehl (Contact Author)

University Bonn ( email )

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