The Macroeconomic Effects of the Federal Reserve’s Unconventional Monetary Policies

By Eric M. Engen, Thomas Laubach, D. Reifschneider. 2015

153 citations recorded by the source corpus.

After reaching the effective lower bound for the federal funds rate in late 2008, the Federal Reserve turned to two unconventional policy tools -- quantitative easing and increasingly explicit and forward-leaning guidance for the future path of the federal funds rate -- in order to provide additional monetary policy accommodation. We use survey data from the Blue Chip Economic Indicators to infer changes in private-sector perceptions of the implicit interest rate rule that the Federal Reserve would use following liftoff from the effective lower bound. Using our estimates of the changes over time in private expectations for the implicit policy rule, and estimates of the effects of the Federal Reserve's quantitative easing programs on term premiums derived from other studies, we simulate the FRB/US model to assess the actual economic stimulus provided by unconventional policy since early 2009. Our analysis suggests that the net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case. Our analysis implies that the peak unemployment effect -- subtracting 1¼ percentage points from the unemployment rate relative to what would have occurred in the absence of the unconventional policy actions -- does not occur until early 2015, while the peak inflation effect -- adding ½ percentage point to the inflation rate -- is not anticipated until early 2016.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/08c4652da4db1b9959eddd82e1836f93c0dffdcb

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Citations in the corpus

Necessity As the Mother of Invention: Monetary Policy after the Crisis (2017, unknown): “For the ECB’s SMP program, Eser and Schwaab (2016) find large announcement effects on yields of the five targeted euro area countries.”
Forward Guidance and Macroeconomic Outcomes since the Financial Crisis (2016, background): “See Evans et al. (2015) for references to the relevant literature. Krishnamurthy and Vissing- Jorgensen (2011) argued that signaling lower rates for longer is the main channel through which QE affects borrowing rate, so QE also can be viewed through the lens of forward guidance.”
The international transmission of monetary policy (2018, unknown): “As the channels for policy transmission into the real economy may change during periods of unconventional monetary policy (Engen, Laubach, and Reifschneider 2015), the channels for international transmission of policies might also differ (Neely 2015).4 The empirical literature on international…”