Evaluating Quantitative Easing: A DSGE Approach

Matteo Falagiarda

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a simple Dynamic Stochastic General Equilibrium (DSGE) model capable of evaluating the effect of large purchases of treasuries by central banks. The model exhibits imperfect asset substitutability between government bonds of different maturities and a feedback from the term structure to the macroeconomy. Both are generated through the introduction of portfolio adjustment frictions. As a result, the model is able to isolate the portfolio rebalancing channel of Quantitative Easing (QE). This theoretical framework is employed to evaluate the impact on yields and the macroeconomy of large purchases of medium- and long-term treasuries recently carried out in the US and UK. The results from the calibrated model suggest that large asset purchases of government assets had stimulating effects in terms of lower long-term yields, and higher output and inflation. The size of the effects is nevertheless sensitive to the speed of the exit strategy chosen by monetary authorities.

Keywords: unconventional monetary policies; quantitative easing; DSGE models; asset prices (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/49457/1/MPRA_paper_49457.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/72380/1/MPRA_paper_49457.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/72468/9/MPRA_paper_72468.pdf revised version (application/pdf)

Related works:
Journal Article: Evaluating quantitative easing: a DSGE approach (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:49457

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().