Did Large-Scale Asset Purchases Work?

Abstract

This paper analyzes the effects of the Federal Reserve’s Large-Scale Asset Purchase (LSAP) programs on a large set of macroeconomic variables (based on the Stock and Watson (2002) dataset), over a sample covering the entire duration of quantitative easing policies. We find that these unconventional policies have significantly stimulated the real economy, boosting output, income, consumption, industrial activity, investment and confidence. They also spurred a recovery in the labor and housing markets. At the same time, in spite of the increase in money and credit aggregates, there has been little positive impact on inflation or wages. Our results are robust to analyzing LSAP announcements versus actual asset purchases. The estimates suggest that both the portfolio rebalancing and the signaling channels have been of considerable importance for the transmission of asset purchases to the broader economy.