Unbundling quantitative easing: taking a cue from treasury auctions

Walker Ray, Michael Droste and Yuriy Gorodnichenko

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study the role of preferred habitat in understanding the economic effects of the Federal Reserve’s quantitative easing (QE). Using high-frequency identification and exploiting the structure of the primary market for US Treasuries, we isolate demand shocks that are transmitted solely through preferred habitat channels but otherwise mimic QE shocks. We document large localized yield curve effects when financial markets are disrupted. Our calibrated model, which embeds preferred habitat in a New Keynesian framework, can largely account for the observed financial effects of QE. QE is modestly stimulative for output and inflation, but alternative policy designs can generate stronger effects.

Keywords: quantitative easing; monetary policy; market segmentation; treasury auctions (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2024-09-01
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Published in Journal of Political Economy, 1, September, 2024, 132(9), pp. 3115 - 3172. ISSN: 0022-3808

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http://eprints.lse.ac.uk/120833/ Open access version. (application/pdf)

Related works:
Journal Article: Unbundling Quantitative Easing: Taking a Cue from Treasury Auctions (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:120833

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