The Wealth Effects of Quantitative Easing
The Federal Reserve employed aggressive measures over the past eight years to stimulate a sluggish economy. These included Operation Twist and quantitative easing rounds one (QEI), two (QEII), and three (QEIII) with an emphasis on the purchase of mortgage-backed securities. Chairman Ben Bernanke made it clear that the Fed’s policies should work not only through low interest rates alone, but also through wealth creation. This paper explores the effectiveness of the Fed’s actions to increase asset prices and thus enable the wealth effect. We find that increases in monetary aggregates, such as the monetary base, excess reserves and M2, increased equity prices. This was particularly evident in Operation Twist and the purchase of mortgage-backed securities. The purchase of mortgage-backed securities was also seen as increasing housing prices.
Document Object Identifier (DOI)
Huston, J. H., & Spencer, R. W. (2016). The wealth effects of quantitative easing. Atlantic Economic Journal, 44, 471-486. doi: 10.1007/s11293-016-9511-9
Atlantic Economic Journal