Market-Function Asset Purchases

Darrell Duffie and Frank M. Keane

No 1054, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper investigates the goals, costs, and benefits of official-sector purchases of government securities for the purpose of restoring market functionality. We explore the design of market-function purchase programs, including their communication, triggers, operational protocols, exit, and wind-down strategies. We further discuss whether, under some circumstances, fiscal buybacks might be a useful alternative or complement to central-bank market-function purchase programs, and how these buybacks could be funded. The use of fiscal buybacks to support market functionality can be aligned with the fiscal authority’s goal of minimizing the government’s interest expense and can reduce challenges that can be faced by a central bank when asset purchases are not naturally congruent with monetary policy. Depending on the setting and circumstances, fiscal buybacks can also mitigate perceptions of risks to the central bank’s independence.

Keywords: government securities; financial stability; bond markets; central banking; debt management (search for similar items in EconPapers)
JEL-codes: D53 E44 E52 E58 E61 (search for similar items in EconPapers)
Pages: 35
Date: 2023-02-01
New Economics Papers: this item is included in nep-cba, nep-des and nep-mon
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Citations: View citations in EconPapers (5)

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