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The Macroeconomic Effects of Large-Scale Asset Purchase Programs

Vasco Cúrdia (), Andrea Ferrero () and Han Chen
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Han Chen: University of Pennsylvania

No 372, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: The effects of asset purchase programs on macroeconomic variables are likely to be moderate. We reach this conclusion after simulating the impact of the US Federal Reserve second Large-Scale Asset Purchase program (LSAP II) in a DSGE model enriched with a preferred habitat framework and estimated on US data. Our simulations suggest that such a program increases GDP growth by less than half of a percentage point relative to the absence of intervention, but has a very persistent effect on the level of GDP. The marginal contribution of the asset purchase program to inflation is very small. One key reason behind our findings is that we estimate a small degree of financial market segmentation. If we enrich the set of observables with a measure of long-term debt, we find a substantially smaller semi-elasticity of the risk premium to the amount of debt in the hands of the private sector than the recent empirical literature. In this case, our baseline estimates of the effects of LSAP II on the macroeconomy decrease by at least a factor of two. Throughout the analysis, a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on GDP growth and inflation.

Date: 2012
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Journal Article: The Macroeconomic Effects of Large‐scale Asset Purchase Programmes (2012) Downloads
Working Paper: The macroeconomic effects of large-scale asset purchase programs (2012) Downloads
Working Paper: The macroeconomic effects of large-scale asset purchase programs (2011) Downloads
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