Unbundling quantitative easing: taking a cue from treasury auctions

Ray, Walker, Droste, Michael and Gorodnichenko, Yuriy (2024) Unbundling quantitative easing: taking a cue from treasury auctions. Journal of Political Economy, 132 (9). 3115 - 3172. ISSN 0022-3808

Text (Unbundling Quantitative Easing Taking a Cue from Treasury Auctions) - Accepted Version Repository staff only until 11 July 2025. Available under License Creative Commons Attribution Non-commercial. Download (1MB)

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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.

Item Type:	Article
Official URL:	https://www.journals.uchicago.edu/toc/jpe/current
Additional Information:	© 2024 The University of Chicago
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects) E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
Date Deposited:	23 Nov 2023 10:39
Last Modified:	04 Nov 2024 19:51
URI:	http://eprints.lse.ac.uk/id/eprint/120833

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