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Macroeconomic Effects of Quantitative Easing Using Mid-sized Bayesian Vector Autoregressions

Maciej Stefański

No 2021-068, Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: The paper estimates macroeconomic effects and decomposes transmission channels of quantitative easing in the United States using 15-variable Bayesian vector autoregressive model with stochastic search variable selection prior, distinguishing between Treasury bond purchases, mortgage-backed securities purchases and Operation Twist. A positive quantitative easing shock has a strong, negative impact on unemployment and no impact on prices, with Treasury purchases and Operation Twist found to be more effective than purchases of mortgage-backed securities. Opposite to the assumptions usually made in the literature, quantitative easing transmits to the real economy mostly via the stock market instead of long-term rates. Among numerous extensions to the baseline model, spillbacks are found to account for 40% of the impact of Treasury purchases on unemployment and commercial paper purchases have similar effects on the economy as purchases of Treasury bonds and mortgage-backed securities. However, baseline estimates are not found to be very robust, and thus substantial uncertainty regarding the macroeconomic effects of QE persists.

Keywords: unconventional monetary policy; large-scale asset purchases; QE; GDP; unemployment; United States; stochastic search variable selection; transmission channels; spillbacks; commercial paper. (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2021-10
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
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