The effectiveness of quantitative easing: new evidence on private investment. Issue 28 (14th June 2016)

• Record Type: Journal Article
• Authors: Khemraj, Tarron; Yu, Sherry
• Is Part Of: Applied economics. Volume 48:Issue 28(2016)
• Page Start: 2625
• Page End: 2635
• Publication Date: 2016-06-14
• Subjects: Quantitative easing -- private investment -- unconventional monetary policy; E50 -- E58; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2015.1125439
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: This paper examines the effect of Federal Reserve's large-scale purchases of securities on private investment. We find tentative evidence that quantitative easing (QE) stimulated the level of aggregate investment through the interest rate channel by narrowing corporate bond spread. In particular, the Fed's purchases of mortgage-backed securities were found to have a statistically significant effect on aggregate private investment. Moreover, using a GARCH model, we find that QE has led to a reduction in the volatility of private investment. This finding remains robust with a QE dummy variable as an alternative measure of the unconventional monetary policy. The study also indicates how different aspects of QE influence private investment and its volatility.