Martin Weale, Tomasz Wieladek — What are the macroeconomic effects of asset purchases?

We examine the impact of large scale asset purchase announcements of government bonds on real GDP and the CPI in the United Kingdom and the United States with a Bayesian VAR, estimated on monthly data from 2009M3 to 2014M5. We identify an asset purchase announcement shock with four different identification schemes, always leaving the reactions of real GDP and CPI unrestricted, to test whether these variables react to asset purchases. We then explore the transmission channels of this policy. The results suggest that an asset purchase announcement of 1% of GDP leads to a statistically significant rise of .58% (.25%) and .62% (.32%) rise in real GDP and CPI for the US (UK). In the US, this policy is transmitted through the portfolio balance channel and a reduction in household uncertainty. In the UK, the policy seems to be mainly transmitted through the impact on investors’ risk appetite and household uncertainty.

Download the paper: CEPR Discussion Paper 10495

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What are the macroeconomic effects of asset purchases?
Martin Weale, Tomasz Wieladek

Taper is not the removal of stimulus, it's the opposite

Fed announced it will buy another $10 billion per month in securities. That means monthly purchases down to $65 billion from $85 billion. That means $240 billion of securities remain in the economy, earning interest each year.

At an average of 3% coupon, that means the economy GAINS about $7.5 billion in income. Gaining income is NOT tightening or removal of stimulus.

If the Fed does a $10 billion reduction every month now, that will start to add up quick. For every $10 billion of reduced purchases that equates to about $3.6 billion of new income to the economy. Do the math.

It's stimulus, not removal of stimulus.

The market's got it all wrong.

Carola Binder — Potential Costs of Asset Purchases

How insiders think.

Quantative Ease
Potential Costs of Asset Purchases
Carola Binder | graduate student at UCAL Berkeley