THE FEDERAL RESERVE'S LARGE-SCALE ASSET PURCHASE PROGRAMMES: RATIONALE AND EFFECTS

We provide empirical estimates of the effect of large-scale asset purchases (LSAPs) on longer term US Treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred-habitat literature and the duration channel associated with interest-rate risk. We also clarify LSAPs role in the broader context of historical monetary policy strategy. Results indicate that LSAP-style operations mainly impact longer term rates via the nominal term premium; within that premium, the response is predominantly embodied in the real term premium. The scarcity and duration channels both seem to be of considerable importance.