Board of Governors of the Federal Reserve System

June 2020 (Revised August 2023)

Macroeconomic Effects of Large-Scale Asset Purchases: New Evidence

Kyungmin Kim, Thomas Laubach, and Min Wei

Abstract:

We provide new evidence on the macroeconomic effects of the Federal Reserve's large-scale asset purchases (LSAPs), using a structural VAR with survey-based measures of the LSAP policy stance and instruments constructed from high-frequency yield changes. We estimate that, at the peak, a $500 billion LSAP shock raises output and the price level by about 1.2 percent and 0.8 percent, respectively, while reducing the unemployment rate by 0.5 percentage points. These results are robust to considering possible central bank information effects and allowing for an endogenous switch between the interest rate and the balance sheet tool at the effective lower bound.

Keywords: Quantitative easing (QE), Unconventional monetary policy, external instruments, macro effects, structural VAR, survey expectations

DOI: https://doi.org/10.17016/FEDS.2020.047r1

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