Quantifying the Costs and Benefits of Quantitative Easing

51 Pages Posted: 12 Dec 2022 Last revised: 9 Jul 2023

See all articles by Andrew T. Levin

Andrew T. Levin

Dartmouth College - Department of Economics

Brian Lu

Dartmouth College

Bill Nelson

Bank Policy Institute

Date Written: December 2022

Abstract

We conduct a systematic analysis of the costs and benefits of large-scale securities purchases, using the Federal Reserve’s QE4 program as a concrete example. This program was initiated at the onset of the pandemic in March 2020 and continued for two years, leading to a doubling of the Fed’s securities holdings to about $8.5 trillion as of March 2022. QE4 was initially aimed at mitigating strains in markets for Treasuries and agency mortgage-backed securities but was subsequently aimed more broadly at supporting market functioning and providing monetary stimulus. Nonetheless, QE4 did not have any notable benefits in reducing term premiums. Moreover, since the securities purchases were financed by expanding the Fed’s short-term liabilities, QE4 amplified the interest rate risk associated with the publicly-held debt of the consolidated federal government. Our simulation analysis indicates that QE4 is likely to reduce the Federal Reserve’s remittances to the U.S. Treasury by about $760 billion over the next ten years.

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Suggested Citation

Levin, Andrew T. and Lu, Brian and Nelson, Bill, Quantifying the Costs and Benefits of Quantitative Easing (December 2022). NBER Working Paper No. w30749, Available at SSRN: https://ssrn.com/abstract=4299635

Andrew T. Levin (Contact Author)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

Brian Lu

Dartmouth College ( email )

Department of Sociology
Hanover, NH 03755
United States

Bill Nelson

Bank Policy Institute ( email )

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