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DOI

Quantitative Easingand U.S. Financial Asset Returns

18 Sep 2015-Vol. 2, Iss: 3, pp 76-105
TL;DR: A comprehensive study of the unconventional monetary policy taken by the Federal Reserve since the financial crisis of 2008, specifically on the purchases of different assets by the Fed to change medium and long-term rates is presented in this article.
Abstract: . This paper is a comprehensive study of the unconventional monetary policy taken by the Federal Reserve since the financial crisis of 2008, specifically on the purchases of different assets by the Fed to change medium and long-term rates. Included in this study are the three rounds of quantitative easing, and the two rounds of Operation Twist. A study as such is needed in order to examine if the Fed’s purchases of these various long-term assets had any effect on the financial markets in the longer term perspective since the first announcement of the first round of purchase in November 2008. While there exists a variety of literature on the effects of quantitative easing on Treasuries and mortgage backed securities, there is no single study comprising of all the large scale asset purchases by the Fed, covering their effects on all major financial assets. This study is an attempt to fill this void in current literature on quantitative easing. Keywords. Unconventional Monetary Policy, Quantitative Easing, the Federal Reserve. JEL. E52, E58, G14.

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TL;DR: In this article, the authors discuss how the unconventional monetary policy measures implemented over the past several years -quantitative and credit easing, and forward guidance - can be analyzed in the context of conventional models of asset prices, with particular reference to exchange rates.
Abstract: I discuss how the unconventional monetary policy measures implemented over the past several years - quantitative and credit easing, and forward guidance - can be analysed in the context of conventional models of asset prices, with particular reference to exchange rates. I then discuss alternative approaches to interpreting the effects of such policies, and review the empirical evidence. Finally, I examine the ramifications for thinking about the impact on exchange rates and asset prices of emerging market economies. I conclude that although the implementation of unconventional monetary policy measures may introduce more volatility into global markets, in general it will support global rebalancing by encouraging the revaluation of emerging market currencies.

46 citations

Book
20 Sep 2012
TL;DR: In this paper, the authors examined the quantitative impact of this program on mortgage interest rate spreads and found no separate effect of the stock of MBS purchased by the Federal Reserve, and attributed a sizable portion of the decline in mortgage rates to such risks and a relatively small and uncertain portion to the program.
Abstract: The largest credit or liquidity program created by the Federal Reserve during the financial crisis was the mortgagebacked securities (MBS) purchase program. In this paper, we examine the quantitative impact of this program on mortgage interest rate spreads. This is more difficult than frequently perceived because of simultaneous changes in prepayment risk and default risk. Our empirical results attribute a sizable portion of the decline in mortgage rates to such risks and a relatively small and uncertain portion to the program. For specifications where the existence or announcement of the program appears to have lowered spreads, we find no separate effect of the stock of MBS purchased by the Federal Reserve.

32 citations

Posted Content
TL;DR: In this paper, the effects of monetary policy surprises on returns, volatilities, trading volumes, and bid-ask spread of two equity ETFs, the S&P 500 SPY fund and the SP&P 400 MDY fund, were examined.
Abstract: This paper examines effects of monetary policy surprises on returns, volatilities, trading volumes, and bid-ask spread of two equity ETFs, the S&P 500 SPY fund and the S&P 400 MDY fund. The policy surprises are measured by both surprises in the federal funds rate target changes and surprises in the future direction of the Federal Reserve monetary policy. The results show that there is an overreaction of the SPY to the federal funds rate target surprise in the first five minutes' trading and that both the SPY and the MDY returns, volatilities, trading volumes, and bid-ask spread react more strongly to surprise cuts than to surprise increases in the federal funds rate target. Quantitatively, after 45 minutes, an unanticipated 25-basis-point cut in the federal funds rate target is associated with an increase of 1.2 and 1.6 percent in the SPY and the MDY, respectively, while an unanticipated 25-basis-point decline (or rise) in the four-quarter-ahead Eurodollar futures rate is associated with an increase (or decrease) of 0.71 and 0.40 percent in the SPY and the MDY, respectively. Further evidence also suggests that the market reacts more strongly to surprises in the future direction of monetary policy during the monetary tightening period and that the impact of monetary policy surprises depends on their sizes.

18 citations

Journal ArticleDOI
TL;DR: In this article, the effects of monetary policy surprises on returns, volatilities, trading volumes, and bid-ask spread of two equity ETFs, the S&P 500 SPY fund and the SP&P 400 MDY fund, were examined.
Abstract: This article examines effects of monetary policy surprises on returns, volatilities, trading volumes, and bid–ask spread of two equity ETFs, the S&P 500 SPY fund and the S&P 400 MDY fund. The policy surprises are measured by both surprises in the federal funds rate target changes and surprises in the future direction of the Federal Reserve monetary policy. The results show that there is an overreaction of the SPY to the federal funds rate target surprise in the first 5 minutes' trading and that both the SPY and the MDY returns, volatilities, trading volumes, and bid–ask spread react more strongly to surprise cuts than to surprise increases in the federal funds rate target. Quantitatively, after 45 minutes, an unanticipated 25-basis-point cut in the federal funds rate target is associated with an increase of 1.2 and 1.6% in the SPY and the MDY, respectively, while an unanticipated 25-basis-point decline (or rise) in the four-quarter-ahead eurodollar futures rate is associated with an increase (or decrease) of 0.71 and 0.40% in the SPY and the MDY, respectively. Further evidence also suggests that the market reacts more strongly to surprises in the future direction of monetary policy during the monetary tightening period and that the impact of monetary policy surprises depends on their sizes. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:959–995, 2006

17 citations