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Market-Function Asset Purchases

Author

Listed:
  • Darrell Duffie
  • Frank M. Keane

Abstract

This paper investigates the goals, costs, and benefits of official-sector purchases of government securities for the purpose of restoring market functionality. We explore the design of market-function purchase programs, including their communication, triggers, operational protocols, exit, and wind-down strategies. We further discuss whether, under some circumstances, fiscal buybacks might be a useful alternative or complement to central-bank market-function purchase programs, and how these buybacks could be funded. The use of fiscal buybacks to support market functionality can be aligned with the fiscal authority’s goal of minimizing the government’s interest expense and can reduce challenges that can be faced by a central bank when asset purchases are not naturally congruent with monetary policy. Depending on the setting and circumstances, fiscal buybacks can also mitigate perceptions of risks to the central bank’s independence.

Suggested Citation

  • Darrell Duffie & Frank M. Keane, 2023. "Market-Function Asset Purchases," Staff Reports 1054, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:95722
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    Citations

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    Cited by:

    1. Scheicher, Martin, 2023. "Intermediation in US and EU bond and swap markets: stylised facts, trends and impact of the coronavirus (COVID-19) crisis in March 2020," ESRB Occasional Paper Series 24, European Systemic Risk Board.
    2. Cimon, David A. & Walton, Adrian, 2024. "Central bank liquidity facilities and market making," Journal of Banking & Finance, Elsevier, vol. 162(C).
    3. Ethan Struby & Michael F. Connolly, 2023. "Treasury Buybacks, the Fed's Portfolio, and Local Supply," Working Papers 2023-02, Carleton College, Department of Economics.

    More about this item

    Keywords

    government securities; financial stability; bond markets; central banking; debt management;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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