The Costs of Quantitative Easing: Liquidity and Market Functioning Effects of Federal Reserve MBS Purchases

2014 ◽  
Author(s):  
John Kandrac
Keyword(s):  
Federal Reserve ◽  
Quantitative Easing

Loose policy outside US will check bond sell-off

2017 ◽  
Keyword(s):  
Federal Reserve ◽  
Tax Reform ◽  
Emerging Market ◽  
Quantitative Easing ◽  
Treasury Bonds ◽  
Content Type ◽  
Volatility Index ◽  
Bank Of Japan ◽  
Bond Funds

Significance The pace is partly being checked by continued Bank of Japan (BoJ) and ECB quantitative easing (QE). Benchmark ten-year Treasury yields have gained around 30 basis points (bp) since August but Japanese and German yields have risen far less. US bonds are being strained by the Federal Reserve (Fed)'s more hawkish stance and the prospects of even modest tax reform, but investors scepticism about the pace of tightening is suppressing volatility. Impacts Gradual monetary tightening is unlikely to stir the volatility index from its near-20-year low but a sudden sharp shock could. Inflows into emerging market bond funds in 2017 are on track to exceed their 2012 high of 103 billion dollars despite uncertain prospects. There is scant evidence yet that the ‘reflation trade’ is back; ten-year Treasury bonds are still nearly 25 bp below March levels. Timing and triggers of a US equities downturn are hard to predict; two potential triggers are a US policy mistake and ECB miscommunication.

ECB QE and growth may obscure Polish political risk

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Federal Reserve ◽  
Economic Recovery ◽  
Coalition Government ◽  
Parliamentary Election ◽  
Quantitative Easing ◽  
Content Type ◽  
Inconclusive Result ◽  
The Us

Significance Having fallen against the resurgent dollar this year, the zloty has lately been strengthening, since the US Federal Reserve surprised financial markets by striking a more dovish stance than expected on both the timing and pace of the anticipated tightening in monetary policy. While the zloty and Polish stocks had suffered because of fears of a rise in US interest rates, local bonds have been underpinned by the ECB's quantitative easing (QE) programme. The effects of QE and a brisker economic recovery may temporarily offset the risk of an inconclusive result in the parliamentary election in October. Impacts Investors have yet to price in the risk of a hung parliament in Poland following October's election. The vote could lead to the formation of a weak and unstable coalition government. The risk of an unstable coalition is particularly high, given the strong likelihood that PO's share of the vote will decline sharply.

Prospects for emerging economies in 2016

2015 ◽  
Keyword(s):  
Emerging Markets ◽  
Emerging Economies ◽  
Federal Reserve ◽  
Quantitative Easing ◽  
Fiscal Deficits ◽  
Content Type ◽  
Economic Fundamentals ◽  
The Us ◽  
Lift Off ◽  
Public Debts

Subject Prospects for emerging economies in 2016. Significance Emerging markets (EMs) face formidable headwinds as their economic fundamentals deteriorate and the US rates 'lift-off' gets closer: China's slowing growth, the commodity sell-off, investment cuts, depreciating currencies and high debt levels, especially dollar-denominated debt. Neither a delay in the Federal Reserve (Fed) rate rise nor the forthcoming quantitative easing (QE) extension by the ECB will provide long-lasting respite amid widening fiscal deficits and rising public debts.

scholarly journals A POLÍTICA DE QUANTITATIVE EASING ADOTADA PELO FED ALTERA A VOLATILIDADE DOS ATIVOS NO BRASIL?

2018 ◽  
Vol 36 (69) ◽  
Author(s):  
Helberte João França Almeida ◽  
Adilson Giovanini ◽  
Kleverton Clovis de Oliveira Saath ◽  
Milton Biage
Keyword(s):  
Federal Reserve ◽  
Quantitative Easing

A crise financeira de 2008 resultou em um quadro de taxas de juros de curto prazo próximas de zero e levou vários países a adotarem políticas monetárias não convencionais com a finalidade de estabilizar o sistema financeiro e sustentar o nível da atividade econômica. Embora o objetivo do programa de compra de títulos, denominado como quantitative easing (QE), iniciado pelo Federal Reserve (Banco Central dos Estados Unidos), fosse estimular a atividade econômica interna, seu efeito externalidade foi sentido pelos países emergentes que observaram uma elevação no fluxo de capital externo, um aumento na procura por ativos e uma apreciação da moeda nacional. Dado este contexto, o presente estudo avalia se o QE afetou a volatilidade do índice Ibovespa, do câmbio, do riscopaís, da taxa de juros dos Estados Unidos e do índice de renda fixa. Para tanto, utiliza-se de técnicas de estudos de eventos e modelos autorregressivos e generalizados autorregressivos heteroscedásticos para verificar o comportamento das variáveis consideradas. Os resultados encontrados indicam que o QE alterou a volatilidade dos ativos em alguns períodos analisados e seu início/fim modificou os retornos dos ativos.

scholarly journals Estimation of Impact of Quantitative Easing Policy on EUR/USD using behavioral Equilibrium Exchange Rate Model

2019 ◽  
Vol 23 (4) ◽  
pp. 117-128
Author(s):  
A. A. Vinogradov
Keyword(s):  
Exchange Rate ◽  
Federal Reserve ◽  
Quantitative Easing ◽  
Rate Model ◽  
Equilibrium Exchange Rate ◽  
European Central ◽  
Equilibrium Exchange ◽  
The Us ◽  
Behavioral Equilibrium Exchange Rate ◽  
The Impact

The article examines the impact of the policy of the uSA quantitative easing and the euro area on the nominal EuR/ uSD exchange rate. After the economic crisis of 2008–2009, the policy of quantitative easing gained popularity among the world’s largest economies. The largest programs were implemented by the uS Federal Reserve (uS Federal Reserve System) and the European Central Bank (ECB). However, the impact of the actual purchase volume of securities on the EuR/uSD exchange rate within these policies has been little studied in modern literature. The author collected the data from 1999 to 2018 on the exchange rate, macroeconomic and market indicators, and calculated the monthly actual purchase volumes of securities under the asset purchase program of the united States and the euro area. The behavioral equilibrium exchange rate model was used. The linear model specification and the error correction model identified no significant impact of the ECB quantitative easing policy expressed in the actual purchase volume of securities. However, for some specifications, it has been proven that the increase in purchases of securities by the uS Federal Reserve leads to a weakening of the dollar against the euro. The cointegration test revealed a long-term dependence of the EuR/uSD exchange rate on the accumulated volumes of acquired assets. Thus, an increase in the purchase volume of securities led to a weakening of the dollar against the euro. The insignificant impact of the European Central Bank quantitative easing policy could have been caused by market expectations formed prior to the actual purchase of ECB securities in the market.

FED's Unconventional Monetary Policy and Correlation Dynamics Among Conventional and Alternative Investments

2020 ◽  
pp. 37-56
Author(s):  
Ioannis Tsakalos ◽  
Efthymios Roumpis
Keyword(s):  
Monetary Policy ◽  
Federal Reserve ◽  
Policy Implications ◽  
Quantitative Easing ◽  
Ripple Effect ◽  
Unconventional Monetary Policy ◽  
Policy Makers ◽  
Alternative Investments ◽  
Asset Classes ◽  
The U.S

This chapter investigates the correlations between conventional and alternative investments during the quantitative easing (QE) programs launched by the U.S. Federal Reserve. Authors focus on different asset classes to examine the dynamics on their correlations and to highlight alternative investment options for rational investors and policy makers. Their analysis covers the period from January 3, 2005 to March 16, 2018. Research has significant policy implications and the empirical findings indicate a ripple effect of QE across conventional and alternative investments and suggest that their correlations differ by QE periods. Researchers also confirm the effectiveness of the portfolio rebalance channel pictured on specific assets' correlation sign, as well as the existence of specific patterns. UMP programs create portfolio rebalance since investors followed the required path set by the Fed.

Lone US Fed dove raises concerns about orderly QE exit

2017 ◽  
Keyword(s):  
Federal Reserve ◽  
Quantitative Easing

At the Federal Reserve meeting, Neel Kashkari voted no change and raised concern about the quantitative easing exit

MONETARY SHOCKS, POLICY TOOLS AND FINANCIAL FIRM STOCK RETURNS: EVIDENCE FROM THE 2008 US QUANTITATIVE EASING

2017 ◽  
Vol 62 (01) ◽  
pp. 27-56 ◽  
Author(s):  
ALI ASHRAF ◽  
M. KABIR HASSAN ◽  
WILLIAM J. HIPPLER
Keyword(s):  
Monetary Policy ◽  
Stock Returns ◽  
Financial Institutions ◽  
Federal Reserve ◽  
Monetary Shocks ◽  
Quantitative Easing ◽  
Policy Tools ◽  
Federal Funds Rate ◽  
Policy Tool ◽  
The Impact

We extend the work of Bernanke and Kuttner [(2005). What explains the stock market’s reaction to federal reserve policy? Journal of Finance, 60, 1221–1257] by examining the impact of monetary shocks and policy tools on aggregate stock returns as well as the stock returns of financial institutions during the recent period of quantitative easing (QE) in the US. Specially, we test for the effectiveness of a major non-conventional monetary policy tool, the use of special asset purchase programs by the Federal Reserve, in impacting the financial markets. Estimates from vector auto-regression (VAR) analyses show that the impact of both unexpected and expected monetary shocks on aggregate stock returns is magnified several times during periods of QE. In addition, traditional monetary policy tools, like the Federal Funds rate, have no impact on aggregate stock returns, neither leading up to, nor during QE, while our non-conventional policy measure does appear to have some impact. In an extension of our results, we find that unexpected monetary shocks have an increased marginal impact on the stock returns of financial firms during QE. In addition, the stock returns of financial institutions have significant reactions to both changes in non-conventional monetary policy tools and announcements surrounding non-conventional policy actions.

Investors’ risk aversion integration and quantitative easing

2019 ◽  
Vol 12 (2) ◽  
pp. 170-183 ◽  
Author(s):  
Athanasios Fassas ◽  
Stephanos Papadamou ◽  
Dionisis Philippas
Keyword(s):  
Risk Aversion ◽  
Empirical Analysis ◽  
Federal Reserve ◽  
Financial Stability ◽  
Stock Price ◽  
Spillover Effects ◽  
Quantitative Easing ◽  
Content Type ◽  
The Usa ◽  
The Empirical Analysis

Purpose The purpose of this paper is to examine the spillover effects in international financial markets related to investors’ risk aversion as proxied by the variance premium, and how these relationships were affected by the quantitative easing (QE) announcements by the Federal Reserve. Design/methodology/approach The empirical analysis employs a multivariate exponential generalized autoregressive conditionally heteroskedastic (VAR-EGARCH) specification, which includes the USA, the UK, Germany, France and Switzerland. Findings Two main findings are raised from the empirical analysis. First, the VAR-EGARCH model identifies statistically significant spillover effects identifying the USA as the leading source driving investors’ risk aversion. Second, unconventional monetary easing announcement by the Fed has had significant effects on investors’ risk perspectives. Practical implications Accounting for the dynamic volatility of variance premium inter-dependencies, the authors show that the correlations among variance premia increase during the QE announcements by the Federal Reserve, suggesting a herding behavior that may potentially lead to stock price bubbles and undermine financial stability. Originality/value This is an empirical attempt that investigates the unexplored effects of unconventional monetary policy decisions in relation with investors’ attitudes toward risk.

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