econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 12 March 2016

Did Quantitative Easing Work?

from the Philadelphia Fed

-- this post authored by Edison Yu

As the economy began to falter amid the financial crisis in the fall of 2007, the Federal Reserve responded in the usual fashion by lowering its short-term interest rate target. But by the end of 2008, with short-term rates down to virtually zero and the economy and financial system still in trouble, the Federal Reserve adopted an unorthodox program known as quantitative easing (QE) that sought to directly lower long-term interest rates and thus stimulate the economy.

To carry out QE, the Fed embarked on three rounds of purchases of long-term securities that increased its balance sheet more than fourfold, to about $4.5 trillion in 2015. As we will see, economic theory tells us that long-term rates are mainly determined by what investors expect short-term rates to be in the future. So why did policymakers think they had a shot at lowering long-term rates when short-term rates were already as low as they could go? As former Fed Chairman Ben Bernanke quipped in 2012, "Well, the problem with QE is it works in practice, but it doesn't work in theory."

So what is the theoretical reasoning behind QE? Did QE lower long-term yields? Did it actually stimulate the economy? And what does the evidence so far say about the costs of the Fed's unprecedented accumulation of assets?

WHY QE?

The federal funds rate - what banks pay each other to borrow funds overnight - is the conventional tool that the Fed uses to conduct monetary policy. The Fed typically raises it to prevent the economy from expanding so quickly that it stokes inflation and lowers it when the economy is weak. A lower federal funds rate reduces banks' costs, which then leads other market interest rates, such as bank prime lending rates and mortgage rates, to fall as well, which lowers the cost of capital for firms and households and thus stimulates borrowing and hence the economy (Figure 1).

[click on image below to continue reading]

Source: https://www.philadelphiafed.org/-/ media/research-and-data/publications/ economic-insights/2016/q1/ eiq116_did-quantitative_easing_work.pdf? la=en

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Was Marx Right?
Angst in America, Part 4: Disappearing Pensions
News Blog
Documentary Of The Week: History Of The World From The Beginning Of 'Time'
The Four Factors That Decide How We Feel About Income Inequality
Why Mexican Immigrants Are Healthier Than Their US-born Peers
The US View On Climate Change
Hilarious Security Camera Compilation
Brexit: Whither The Pound?
Is Chinese Growth Overstated?
Trading Ideas Between Countries
Recession To Recovery: A Decade In Perspective
Infographic Of The Day: Visualizing America's Changing Energy Mix
Early Headlines: Asia Stocks Up, Dollar And Oil Down, Gold Stable, Trump Tax Plan Today, Trump Reviews National Monuments, UK Deficit Lowest In 10 Years, China Banking Crisis, Canadian Lumber Tariff, And More
Jesus Christ vs. Confucius
2016 The Worst Year So Far For Syria's Children
Investing Blog
Facebook Is Coming After Snapchat From All Sides
Know Your Energy Sector
Opinion Blog
Squeezing The Philippine Peso
Trump Just Imposed A New Tax On Lumber
Precious Metals Blog
A New Age For Gold
Live Markets
26Apr2017 Market Close: Wall Street Closes In The Red After What First Appeared To Be Another Green Session, WTI Crude Slips Down Into The Low 49 Handle, While Gold Trends Sharply Higher
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved