Evaluating quantitative easing: a DSGE approach

Falagiarda, Matteo

doi:10.1504/ijmef.2014.067724

Cited by 17 publications

(24 citation statements)

References 81 publications

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“…The same formulation has been used previously by, e.g., Andrés et al (2004), Falagiarda (2013), Harrison (2017), and Liu et al (2015). 7 The description of the budget constraint here omits adjustment costs in the real sector of the economy (price, wage, capital stock, and labour adjustment costs) that do not affect the first-order conditions for portfolio holdings and savings.…”

Section: Model Descriptionmentioning

confidence: 99%

“…In particular, households have a preference for holding a mix of short-term and long-term bonds, and deviations from the target value  for the ratio of long-term over short-term debt induce quadratic adjustment costs ( b  ). The same formulation of portfolio preferences or adjustment costs has been used previously by, for example, Andrés et al (2004), Falagiarda (2013), Harrison (2012), and Liu et al (2015). 21 Note that , is related to , the private consumption deflator in terms of input factors, by the formula:…”

Section: A11 Ricardian Householdsmentioning

confidence: 99%

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The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

Hohberger

Priftis

Vogel

2019

Journal of Economic Dynamics and Control

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This paper estimates an open-economy dynamic stochastic general equilibrium model with Bayesian techniques to analyse the macroeconomic effects of the European Central Bank's (ECB's) quantitative easing (QE) programme. Using data on government debt stocks and yields across maturities, we identify the parameter governing portfolio adjustment in the private sector. Shock decompositions suggest a positive contribution of ECB QE to annual euro area output growth and inflation in 2015-16 of up to 0.3 and 0.6 percentage points (pp) in the linearised version of the model. Allowing for an occasionally binding zerobound constraint by using piecewise linear solution techniques raises the positive impact to up to 0.7 and 0.8 pp. RésuméNous estimons, par des techniques bayésiennes, un modèle d'équilibre général dynamique et stochastique en économie ouverte afin d'analyser les effets macroéconomiques du programme d'assouplissement quantitatif de la Banque centrale européenne (BCE). À partir des données portant sur l'encours des titres d'État et les taux de rendement pour la gamme des échéances, nous évaluons le paramètre qui détermine les ajustements de portefeuilles dans le secteur privé. Les décompositions de chocs effectuées montrent qu'en zone euro, les mesures d'assouplissement quantitatif de la BCE auraient entraîné, en 2015-2016, des effets positifs sur la croissance annuelle de la production et sur l'inflation à hauteur de 0,3 et 0,6 point de pourcentage dans la version linéarisée du modèle. Lorsque nous permettons que la contrainte de la borne du zéro soit occasionnellement active au moyen de techniques de linéarisation, l'incidence favorable se chiffre respectivement à 0,7 et 0,8 point de pourcentage. Sujets : Modèles économiques; Taux d'intérêt; Transmission de la politique monétaire Codes JEL : E44, E52, E53, F41 Non-technical SummaryIn early 2015 the European Central Bank (ECB) joined the group of central banks that have implemented large-scale asset purchase programmes as unconventional policy measures. The ECB's quantitative easing (QE) programme, announced in January 2015, foresaw buying €60 billion of assets a month from March 2015 to September 2016, which in sum corresponds to circa 10% of annualised euro area (EA) gross domestic product (GDP). It has been continuously revised in both size and duration since then. This paper analyses the macroeconomic effects of the ECB's QE programme using a tworegion dynamic stochastic general equilibrium (DSGE) model for the EA and the rest of the world, estimated with Bayesian techniques. The estimation of the model is undertaken in an environment where the zero lower bound may be binding and to solve such models requires extending previous algorithms. QE is introduced into the model by adding a central bank balance sheet and distinguishing between short-term and long-term government debt. We use a formulation of a private-sector portfolio that allows for non-neutral effects of central bank purchase programmes due to imperfect substitutability between assets of different...

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Section: Model Descriptionmentioning

confidence: 99%

Section: A11 Ricardian Householdsmentioning

confidence: 99%

The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

Hohberger

Priftis

Vogel

2019

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

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“…Hence, the baseline results from the model serve as a robustness check for the results in literature. 18 Moreover, the flexibility of the model allows for a deeper understanding and a panoptic view of 19 Meanwhile, long-term interest rate are down and respond sluggishly to the increase in short-term interest rate due to the persistent negative stock effect of FOHL. This leads to a decoupling of long-term rate from short-term interest rate causing the term spread to fall a result consistent with the Greenspan Conundrum.…”

Section: Related Literaturementioning

confidence: 99%

“…7 See for example Joyce et al (2012), Gertler and Karadi (2011), Swanson (2011), Falagiarda (2014) for evidence of the effectiveness of Quantitative Easing policy in the U.S. 8 FOHL forms 70 percent of total foreign official holdings, see figure 3. 9 For example Andés et al (2004) shows that the long-term interest rate unambigiously affects aggregate demand.…”

Section: Introductionmentioning

confidence: 99%

“…FOHL is modelled so that it is an exogenous time varying share of long-term outstanding 10 Section 3 provides a simple graphical intuition on this example. 11 For more on portfolio adjustment friction see for instance Marzo et al (2008), Falagiarda and Marzo (2012), Harrison (2011), Falagiarda(2014). See also D'Amico and King (2013) for empirical evidence of imperfect substitution or segmentation within the Treasury market.…”

Section: Introductionmentioning

confidence: 99%

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Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach

Francois

2018

The B.E. Journal of Macroeconomics

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This paper examines the effects of shocks to foreign official holdings of long-term U.S. Treasuries (FOHL) on macroeconomic aggregates using a dynamic general equilibrium model. The model treats short- and long-term bonds as imperfect substitutes through endogenous portfolio adjustment frictions. This provides a channel for changes in relative supply of assests to influence asset prices. Three key findings emerge: (1) positive shocks to FOHL impact the long-term interest rate and the term spread negatively through a stock effect channel – defined as persistent changes in interest rates as a result of movement along the Treasury demand curve. This result is consistent with findings in the empirical literature. (2) Through a feedback mechanism from an endogenous term structure in the model, the decline in the long-term interest rate induces an expansion in economic activity which leads to an increase in consumption, output and inflation. Both the stock effect and the feedback mechanism are generated by the portfolio frictions. (3) Higher degrees of persistence of FOHL shocks or imperfect asset substitution generate a prolonged negative stock effect following shocks to FOHL. This causes a longer delay of the term spread to return to its steady state after it falls; hence, inducing an extended and stronger stimulative feedback effect from the endogenous term structure into the modeled economy. These findings help explain macroeconomic events such as the so-called ``Greenspan conundrum'' of the mid 2000s.

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The macroeconomic effects of unconventional monetary policies in a commodity‐exporting economy: Evidence from Mongolia

Doojav¹,

Damdinjav²

2022

Int. J Fin Econ

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This paper examines the macroeconomic effects of unconventional monetary policies in Mongolia, a developing and commodity‐exporting economy. Within a Bayesian structural vector autoregression framework, central bank balance sheet, policy rate, demand, and supply shocks are identified using a combination of sign and zero restrictions. An expansionary balance sheet shock stimulates bank lending and M2, decreases interest rate spread, leads to a depreciation of the domestic currency, and increases output and consumer prices. The estimated output and consumer price effects are qualitatively similar to the effects of conventional monetary policy, while the impacts on the exchange rate and foreign exchange reserves are different. We also find favourable evidence for the delayed overshooting response of the exchange rate to the balance sheet shock and reveal that financial friction amplifies the effects of demand and supply shocks on the Mongolian economy.

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Evaluating quantitative easing: a DSGE approach

Cited by 17 publications

References 81 publications

The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach

The macroeconomic effects of unconventional monetary policies in a commodity‐exporting economy: Evidence from Mongolia

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