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There is something disingenuous, something hypocritical in the vociferous critiques of Modern Monetary Theory (MMT). The hypocrisy among neoliberal economists reveals itself in tacitly accepting quantitative easing (QE) while criticizing MMT. QE involves creating money to purchase treasury bonds and mortgage-backed securities, benefiting primarily asset holders. MMT involves creating money to employ people, attaining full employment. Neoliberalism rejects Keynesian interventionism, instead advocating using government to channel market forces in ways that benefit corporations and the affluent. The dynamic stochastic general equilibrium (DSGE) model incorporates the neoliberal vision in showing the irrelevance of fiscal policy in achieving full employment. Problems with the DSGE model revealed themselves in its inability to explain the great financial crisis. Nevertheless, neoliberal economists seek to retain the DSGE model while rejecting MMT. The article further contrasts QE with MMT, showing the similarities and difference between the Fed purchasing assets and the government engaged in functional finance. Governments throughout the world are resorting to creating money to increase employment and sustain their economies, policies advocated by MMT. Keywords: modern monetary theory, Great Financial Crisis, quantitative [ABSTRACT FROM AUTHOR]

We study quantitative easing (QE) policies from a microstructure perspective, drawing on intraday transaction-level data for German bonds (purchased under the Eurosystem's QE program). An initial analysis of purchase decisions reveals that portfolio managers consider liquidity and the scarcity of securities in repo markets. Suggestive of significant flow effects, we detect price impacts of purchases at high and low frequencies. We find the impact on market liquidity and functioning to be ambiguous. A higher purchase volume lowers transaction costs but has an adverse impact on order-book depth. The price impact varies with market conditions and is higher for more illiquid bonds. [ABSTRACT FROM AUTHOR]

We quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors on the specific collateral repurchase agreement (repo) rates of all outstanding U.S. Treasury securities. We find a positive and significant scarcity premium for on- and off-the-run Treasuries that persists for approximately 3 months and is larger in magnitude for shorter-term securities. This scarcity effect seems to pass through to Treasury cash market prices, providing additional evidence for the scarcity channel of quantitative easing (QE). On the contrary, the Federal Reserve's reverse repo operations could help reduce the scarcity premium by alleviating potential shortages of high-quality collateral. [ABSTRACT FROM AUTHOR]

In this paper, we focus on the transmission mechanism of quantitative‐easing (QE) policy and address which matters most: the size of the bond purchases in each period (flow effects) or the total amount of bonds taken away from the private sectors (stock effects). To this end, we estimate a dynamic stochastic general equilibrium (DSGE) model in which short‐ and long‐term bonds are imperfect substitutes due to market segmentation and preferred habitats, using Japan's data from the 1980s to 2017. We find that (i) Japan's data support imperfect substitutability between short‐ and long‐term bonds, which implies that government bond purchases by the Bank of Japan (BOJ) reduce the term premium, exerting an expansionary effect on economic activity and prices; (ii) government bond purchases by BOJ have compressed the 10‐year yields by 50–100 basis points as of the end of 2017; and (iii) the compression of the term premium has been mainly driven by stock effects, which underscores the importance of the size of BOJ's government bond holdings in determining the term premium. [ABSTRACT FROM AUTHOR]

This article is a panel discussion on the topic of German criticism of target balances. Ricardo Reis emphasizes the irrelevance of target balances in the absence of a European Union (EU) breakup and disputes the claim that central bank capital is not significant. Nicola Limodio highlights the benefits of the target system over the years, presenting it as a favorable option compared to a real-time gross settlement system. Moritz Schularick raises concerns about the potential issues of the target system in cases of defaults or breakups, and Kevin O'Rourke argues that countries running a current account surplus receive assets rather than consumption goods. Roberto Perotti responds to the comments and acknowledges that the target system could still matter even in the absence of defaults due to its impact on bargaining power. He also addresses the points raised by Kevin O'Rourke and Ricardo Reis, emphasizing the potential gains and disadvantages of the Euro and the target system. [Extracted from the article]

This paper examines how shocks to government bond duration risk held by price‐sensitive investors affect the euro area term structure of interest rates and the wider macroeconomy. We construct a new measure of the bond "free float," which adjusts total debt for foreign official holdings and weights by residual maturity. Using a small macrofinance Bayesian Vector Autoregression (VAR) model, we estimate that the first round of asset purchases under the European Central Bank's (ECB) public sector purchase program reduced euro area 10‐year bond yields by around 30 bps in 2015. The positive impact on the output gap and inflation in 2016 was about 0.2 and 0.3 ppt, respectively. [ABSTRACT FROM AUTHOR]

The article offers information on the policy of quantitative easing of European Central Bank (ECB). Topics discussed include legality of the ECB decision on Outright Monetary Transactions; duration and the economic effects of the Public Sector Assets Purchase Programme; and purchase of government bonds on the secondary market to prevent risk of deflation.

Quantitative easing à la ECB has produced significant impact on long-term nominal rates through ex ante channels, such as signalling channels, term duration channels, and risk premia channels, well before it materially started. Ex post difference-in-differences estimation suggests a significant impact on long-term government bond yields, while the impact of the ECB's first QE on the key inflation rate is very weak. The term duration channel may also lead to a lengthening of the average maturity of government debts, with possible implications for fiscal policy. The ECB's determination to buy government bonds in a fragmented market with a low net supply is also producing an ex post impact, i.e. during the actual asset purchases. High rates volatility suggests that this impact is less on nominal rates and more on financial plumbing. As the effects of scarce supply in collateral markets are felt, repo rates remain well below zero. Low supply and limited re-usability of high quality collateral, capped by regulatory requirements, is an additional constraint on market liquidity and compresses dealers' balance sheets. By keeping a depressed yield curve and asset prices high, QE is also accelerating the consolidation of both traditional and capital-market based (dealer) bank business models, raising questions about implications for global collateral flows and deposit-like funding channels. [ABSTRACT FROM AUTHOR]

The operation of the portfolio balance channel has been emphasized by monetary policymakers as a key channel through which quantitative easing (QE) policies work. We assess whether the investment behavior of insurance companies and pension funds in the United Kingdom during the global financial crisis was consistent with such an effect by analyzing both sectoral and institution-level data. Our results suggest QE led to institutional investors shifting their portfolios away from government bonds toward corporate bonds but did not lead to a shift into equities. [ABSTRACT FROM AUTHOR]

We use new and comprehensive data on the security holdings of euro-area investors to document facts about the ongoing quantitative easing program. The holdings of purchase-eligible government bonds have strong home bias not only for banks but also for insurance companies, pension funds, and mutual funds, especially in the vulnerable countries. In response to the program, foreign investors sold most of the purchase-eligible government bonds. Banks also sold purchase-eligible government bonds to a lesser extent, but insurance companies and pension funds bought them. Thus, quantitative easing may have reduced the duration mismatch for these institutions. [ABSTRACT FROM AUTHOR]

Through its quantitative easing programme the Bank of England has looked to manage the supply of nominal UK government securities in order to lower interest rates. In doing so it has removed more than 25 per cent of the overall supply of those securities from the publicly accessible market. The benchmark New Keynesian model suggests this should only have an impact on interest rates insofar as it affects expectations of future policy rates, whilst alternative theoretical frameworks imply a direct effect of changes in supply onto yields. Our aim is to test for the existence of these potential transmission mechanisms. We find empirical evidence to support the existence of both channels. Our analysis suggests the Bank's quantitative easing programme reduced yields by around 25 basis points through the supply channel alone. Importantly, we find that such supply effects have remained significant in recent years, suggesting that as quantitative easing is unwound the increase in publicly available supply will put upward pressure on interest rates. Lastly we highlight the monetary-fiscal interaction inherent in our result and discuss some of the issues it raises for policymakers. [ABSTRACT FROM AUTHOR]

This study provides new empirical evidence on the impact of the federal budget deficit on the real interest rate yields on intermediate-term debt issues of the US Treasury, represented herein by the ex post real interest rate yields on 3-year Treasury notes and 7-year Treasury notes, two interest rate measures that have received essentially no attention in the economics and finance literature in recent years. This study is couched within a loanable funds model that includes two ex post real interest rate yields, the monetary base as a per cent of GDP, the change in per capita real GDP, net financial capital inflows as a per cent of GDP and the budget deficit as a per cent of GDP. This study uses annual data for the study period 1972 to 2012, a time period that includes ‘quantitative easing’ monetary policies by the Federal Reserve. Two-stage least squares estimations reveal that the federal budget deficit, expressed as a per cent of GDP, exercised a positive and statistically significant impact on the ex post real interest rate yields on both 3-year and 7-year Treasury notes, even after allowing for quantitative easing and other factors. The study also considers the time period 1980 to 2012 and offers simple robustness testing. [ABSTRACT FROM PUBLISHER]

This article uses a novel way of identifying part of the impact of quantitative easing ( QE) on gilt yields, using natural experiments associated with Bank of England announcements about changes in the maturity distribution of future gilt purchases. We find that changes in expected QE purchases had a significant effect on gilt yields following each announcement in March 2009, August 2009 and February 2012. The local supply effects we identify appear to be important: they may account for around half of the total impact on gilt yields in these events, and are passed through to yields of related assets. [ABSTRACT FROM AUTHOR]

The article focuses on a study related to the evaluation of Quantitative Easing (QE) effectiveness to reduce federal funds rate by the U.S. Federal Open Market Committee. Topics discussed include the monetary policy of the U.S. Federal Reserve (USFR), the risks associated with QE and purchasing of longer term treasuries by the USFR.

The article discusses the monetary policy of quantitative easing process by which the U.S. Federal Reserve System purchases a part of the debt of the U.S. government. It mentions that the monetary policy involves buying and selling of government securities which include treasury bonds, notes, and bills. It mentions that the U.S. Federal Open Market Committee takes decision regarding the federal funds rate.

We examine the impact of the first phase of the Bank of England's quantitative easing (QE) programme during March 2009-January 2010 on the UK government bond (gilt) market, using high-frequency, disaggregated data on individual gilts. We find that: QE announcements took varying amounts of time to get incorporated into market prices and had significant effects on the shape of the term structure; the Bank's reverse auctions were initially associated with additional yield reductions; and, allowing for fiscal news and the changing macroeconomic outlook, QE appears to have had persistent effects on gilt yields. [ABSTRACT FROM AUTHOR]

We evaluate the effect of the Federal Reserve's purchase of long-term Treasuries and other long-term bonds (QE1 in 2008-09 and QE2 in 2010-11) on interest rates. Using an event-study methodology, we reach two main conclusions. First, it is inappropriate to focus only on Treasury rates as a policy target, because quantitative easing works through several channels that affect particular assets differently. We find evidence for a signaling channel, a unique demand for long-term safe assets, and an inflation channel for both QE1 and QE2, and a mortgage-backed securities (MBS) prepayment channel and a corporate bond default risk channel for QE1 only. Second, effects on particular assets depend critically on which assets are purchased. The event study suggests that MBS purchases in QE1 were crucial for lowering MBS yields as well as corporate credit risk and thus corporate yields for QE1, and Treasuries- only purchases in QE2 had a disproportionate effect on Treasuries and agency bonds relative to MBSs and corporate bonds, with yields on the latter falling primarily through the market's anticipation of lower future federal funds rates. [ABSTRACT FROM AUTHOR]