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Measuring the effects of large-scale asset purchases: The role of international financial markets and the financial accelerator

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  • Gelfer, Sacha
  • Gibbs, Christopher G.

Abstract

We build and estimate a two-country structural macroeconomic model with meaningful household portfolio decisions over foreign and domestic bond holdings and financial intermediation to investigate the efficacy of large-scale asset purchases (LSAP) by a central bank. Financial intermediation between financial assets and the real economy means that asset purchases do not directly lead to increased real investment. Instead, asset purchases result in an accumulation of deposits at banks without a corresponding rise in loans to the real economy. In contrast to conventional monetary policy (CMP), positive effects of asset purchases primarily work through consumption and exports via changes in real exchange rates. We find that this is in accordance with local projection analysis performed using identified LSAP and CMP shocks. Further, historical decomposition of US data reveals that unconventional monetary policies supported real economic activity when interest rates where zero (2009–2015), but not after. However, their effect on financial markets remained significant through 2019.

Suggested Citation

  • Gelfer, Sacha & Gibbs, Christopher G., 2023. "Measuring the effects of large-scale asset purchases: The role of international financial markets and the financial accelerator," Journal of International Money and Finance, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:jimfin:v:131:y:2023:i:c:s0261560622001942
    DOI: 10.1016/j.jimonfin.2022.102791
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    More about this item

    Keywords

    Unconventional monetary policy; Quantitative easing; International bond portfolio; DSGE; Financial accelerator;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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