Four stories of quantitative easing.
This article describes the circumstances of and motivations for the
programs of the Federal Reserve,
Bank of England
central bank and note-issuing institution of Great Britain. Popularly known as the Old Lady of Threadneedle Street, its main office stands on the street of that name in London.
European Central Bank, and Bank of Japan during the recent financial
crisis and recovery. The programs initially attempted to
To make something easier to be endured.
Mentioned in: Kinesiology, Applied
financial market distress, but this purpose soon broadened to include
achieving inflation targets, stimulating the real economy, and
containing the European sovereign debt crisis. The European Central Bank
and Bank of Japan focused their programs on direct lending to
banks–reflecting the bank-centric structure of their financial
systems–while the Federal Reserve and the Bank of England expanded
their respective monetary bases by purchasing bonds. (JEL E51, E58, E61,
typically conduct monetary policy through control of
short-term nominal interest rates that can potentially affect the
economy through a variety of channels. Because inflation expectations do
not immediately react one for one to changes in nominal interest rates,
central banks can also control real interest rates, at least over the
short to medium term. The typical assumption is that monetary policy
changes real (inflation-adjusted) short-term rates to influence economic
decisions through their effect on other asset prices. That is, real
interest rates will change asset prices in such a way as to change the
willingness of banks to lend, firms to invest, or individuals to consume
or invest in housing. Thus, a change in short-term real interest rates
potentially influences the level of output and employment.
Because people can always hold currency instead of depositing it in
a bank, short-term nominal interest rates cannot go (much) below zero,
which limits the effectiveness of conventional monetary policy. (1)
Concerns about the consequences of the zero bound for interest rates
date at least to Keynes (1936), and many observers have believed that
central banks are helpless when short-term rates are near the zero
bound. Many others, however, have argued that central banks can
influence prices and output even when short-term rates are near their
zero floor by increasing liquidity, particularly by purchasing long-term
assets. For example, Mishkin (1996) characterizes the view that monetary
policy can do nothing to stimulate the economy once short-term nominal
interest rates approach zero as ”
1. Capable of being demonstrated or proved:
2. Obvious or apparent:
Recent events have twice tested this claim: first in the early
2000s in Japan and then after the 2007-09 financial crisis in the
officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world’s third largest country in population and the fourth largest country in area.
, United Kingdom, Japan, and the euro area. With short rates
approaching the zero lower bound in late 2008/early 2009, the Federal
Reserve, the Bank of Japan (
BOJ Beginning of Job
), the Bank of England (
BOE Bank of England
BOE Board of Equalization
BOE Board of Elections
BOE Barrel of Oil Equivalent
BOE Bind on Equip
), and the
European Central Bank (
) began to pursue less conventional monetary
policies–including forms of quantitative easing (QE)–to stimulate
economic growth. QE policies are those that unusually increase the
monetary base, including asset purchases and lending programs. Programs
designed to improve credit conditions–that is, credit easing–are a
special case of QE if they also increase the monetary base.
Academics have already conducted substantial research on recent QE
programs. Stroebel and Taylor (2009), Kohn (2009), Meyer and Bomfim
(2010), and Gagnon et al. (2011a,b), for example, study the Fed’s
2008-09 QE programs. Gagnon et al.’s (2011a,b) announcement study
finds that large-scale asset purchase (
LSAP Lëtzebuergesch Sozialistesch Arbechterpartei
LSAP Logical Service Access Point
LSAP Link Layer Service Access Point
) announcements reduced U.S.
long-term yields. Joyce et al. (2011) find that the BOErs QE program had
bond yield effects quantitatively similar to those reported by Gagnon et
al. (2011a,b) for the U.S. program. Hamilton and Wu (2011) indirectly
calculate the effects of the Fed’s 2008-09 QE programs with a term
structure model. Neely (2012) evaluates the effect of the Fed’s
2008-09 QE on international long bond yields and exchange rates, showing
that the effects are consistent with a simple portfolio balance model
purchasing power parity
Despite this profusion of research on asset purchase programs and
QE more generally, there has been little attempt to describe and compare
QE programs across central banks. (2) This article fills that gap by
describing and comparing the QE and related maturity extension programs
of the BOJ, the BOE, the Fed, and the ECB. We emphasize, however, that
although we draw some limited conclusions about the immediate effects of
the programs on financial markets, we do not evaluate the efficacy of
the QE programs on the broader economies, as that would require
counterfactual models and empirical work well beyond the scope of this
The details of the QE programs varied across central banks and
depended on the particular structures of their respective economies and
the specific motivations for each of the QE actions. For example, this
article details the circumstances under which the ECB and BOJ generously
lent money to banks to
1. To introduce a substance, such as a drug or vaccine, into a body part.
2. To treat by means of injection.
reserves into their bank-centric
economies, but the Fed and BOE
1. Of or relating to a substance introduced into the body.
2. Of or relating to a blood vessel that is visibly distended with blood.
1. introduced by injection.
reserves into the U.S. and U.K.
economies by purchasing bonds. One topic on which this article does not
shed light is the extent to which the QE and related programs might have
been coordinated; there is no significant public information on the
extent of international coordination, if any.
The QE programs in response to the financial crisis differ
radically from temporary increases in the monetary base that are
occasionally used to provide liquidity for short periods, such as
central banks did for
or short-term emergency last-resort lending.
Instead, this article discusses the recent episodes in which central
banks used QE to stimulate the economy, perhaps by facilitating the
functioning of particular financial markets.
The next section discusses potential monetary transmission
mechanisms at the zero lower bound, how the mechanisms provide a role
for QE, and how they explain the choices involved in QE programs. We
then discuss the relationship between QE and credit easing and describe
the Fed, BOJ, BOE, and ECB motivations and programs in the context of a
timeline. This is followed by summaries of the amounts and types of
asset purchases and our conclusion.
MONETARY TRANSMISSION MECHANISMS AT THE ZERO LOWER BOUND
1. As a general rule; usually:
2. In the commonplace or usual manner:
conduct monetary policy by buying and
selling short-term debt securities to target short-term nominal interest
rates. These purchases and sales of assets change both short-term
interest rates and the monetary base (the quantity of currency and
in the economy). For example, a central bank can expand the
monetary base in two essentially equivalent ways: by buying bonds from
the public or by lending money to the public. Buying bonds reduces the
public’s bond holdings and increases the amount of currency and
bank reserves in the economy. This conventional monetary policy can
potentially stimulate the economy through two types of channels: asset
price channels (including interest rates’ and credit channels.
By purchasing short-term securities, expanding the monetary base,
and lowering short-term real interest rates, central banks can affect a
variety of asset prices, including exchange rates and stock prices. The
changes in asset prices can affect economic decisions. Higher stock
prices can directly stimulate consumption and business investment by
increasing consumer wealth and making the issuance of new stock more
lucrative. A lower foreign exchange value of the domestic currency makes
domestic goods more competitive with foreign goods. Lower interest rates
encourage borrowing for consumption and investment.
Credit channels require asset price changes to work but they also
exploit the fact that easier monetary policy can reduce the effect of
certain financial frictions–adverse selection and moral hazard–that
v. hin·dered, hin·der·ing, hin·ders
1. To be or get in the way of.
2. To obstruct or delay the progress of.
borrowing. (3) These problems are especially pervasive during
difficult economic times. One example of how economic conditions
influence lending through these
is that expectations of low
profitability can discourage potentially
Having an acceptable credit rating.
seeking to borrow at all, but they will not discourage
borrowers who have no intention of repaying the loan. Thus, the pool of
firms and individuals seeking loans will become heavily weighted toward
fraudulent borrowers and banks–knowing this–will become increasingly
reluctant to make loans. By lowering interest rates and raising stock
expansionary monetary policy
can improve the balance sheets of
firms and consumers, reducing problems of adverse selection and
However, purchasing short-term securities cannot lower interest
rates when they are at zero; therefore, increasing the monetary base is
not–by itself–considered an effective stimulus. Because money and
bonds become close substitutes, the public can simply choose to hold
central bank injections of money as currency “under the
mattress,” which prevents the additional money from stimulating
economic activity. Such a situation is called a
motivate central banks to focus on specific markets and/or interest
rates rather than simply expanding the quantity of money. (4)
In the face of near-zero short-term rates, central banks have
recently turned to unconventional policies, which often dramatically
increase their monetary bases, to alleviate
stimulate their economies. Some of these unconventional policies involve
direct lending to specific, distressed short-term credit markets,
whereas others involve purchases of long-term assets that are intended
to reduce real, long-term interest rates.
To understand how monetary policy can potentially affect long-term
interest rates, it is useful to
v. de·com·posed, de·com·pos·ing, de·com·pos·es
1. To separate into components or basic elements.
2. To cause to rot.
the n-year real yield on a
bond as follows:
[y.sub.t,t+n] = [[bar.y].sub.t,t+n] + [TP.sub.t,n] –
where [y.sub.t,t+n] is the expected real yield at time t on an
n-year bond, [[bar.y].sub.t,t+n] is the average expected overnight rate
over the next n years at time t, [TP.sub.t,n] is the term premium on an
n-year bond at time t, and [E.sub.t][[pi].sub.n] is the expected average
rate of inflation over the next n years at time t. Long-term real yields
can decline in any of three ways: (i) Expected inflation can increase,
(ii) the expected policy rate path can fall, and (iii) the term premium
What sort of monetary policy would change expected inflation, the
expected path of short rates, and/or the term premium? First, a central
bank can commit to zero interest rates beyond the period that their
reaction function would normally call for, what Eggertsson (2006) refers
to as “committing to be
1. Marked by a lack of responsibility:
2. Lacking a sense of responsibility; unreliable or untrustworthy.
.” (5) Such a
strategy–often termed “signaling”–is time inconsistent,
however: The central bank will want to
its commitment and
return to its normal policy when conditions improve. The second and
third methods–outright asset purchases and bank lending (QE)–can help
resolve the apparent time
n. pl. in·con·sis·ten·cies
1. The state or quality of being inconsistent.
2. Something inconsistent:
of a commitment to an announced
policy rate path by changing the central bank’s incentives through
its balance sheet. A central bank that purchases a
Of considerable size; fairly large.
long bonds when long rates are low will see the value of its bond
portfolio decline if long rates rise. (6) Similarly, the value of
long-term loans will decline as long-term rates rise.
Despite concerns about time consistency, recent policy has
incorporated strategies that attempt to commit to a path: The Fed, for
example, used five variations of “extended period” language to
restrain expectations of policy rate hikes, eventually suggesting that
it would maintain its low policy rate until at least mid-2015. On
December 12, 2012, the
See Federal Open Market Committee (FOMC).
linked the rate hikes to economic conditions
rather than a fixed date. Specifically, the FOMC announced that it
expected low rates to be appropriate as long as the unemployment rate
was above 6.5 percent, medium-term inflation forecasts stayed below 2.5
percent, and long-run inflation expectations remained anchored. (7)
Central banks can also lower long-term real rates by reducing term
premia through asset purchases. This method relies on the portfolio
balance channel, which assumes frictions–typically preferred
habitat/market segmentation–that (i) preclude perfect
see foreign exchange.
Business operation involving the purchase of foreign currency, gold, financial securities, or commodities in one market and their almost simultaneous sale in another market, in order to profit from price
long and expected short rates and (ii) permit changes in the maturity
composition of nominal government debt to affect asset prices. That is,
a central bank’s purchase of a quantity of a certain type of risk
(i.e., duration) will cause investors to demand less compensation to
hold the remaining amount of that type of risk and term premia will
fall. Thus, signaling and portfolio balance channels allow asset
purchases to lower long real rates and thereby stimulate the economy
The one or ones mentioned previously.
asset price and credit channels (Mishkin,
QUANTITATIVE EASING VERSUS CREDIT EASING
This section differentiates credit easing from pure QE. Credit
easing policies are intended to reduce specific interest rates/restore
market function, while QE describes any policy that unusually increases
the magnitude of central bank liabilities–currency and bank
reserves–particularly at the zero bound. Credit easing can
in law, restriction of inheritance to a limited class of descendants for at least several generations. The object of entail is to preserve large estates in land from the disintegration that is caused by equal inheritance by all the heirs and by the ordinary
but it specifically targets certain markets and/or interest rates.
Federal Reserve Chairman Ben Bernanke termed the Fed’s LSAPs
“credit easing” because the Fed sought to improve the
functioning of long-term bond markets and decrease long-term interest
rates rather than simply increase the monetary base. In the same speech,
the Chairman stated that “in a pure QE regime, the focus of policy
is the quantity of bank reserves, which are liabilities of the central
bank; the composition of loans and securities on the asset side of the
central bank’s balance sheet is
” (Bernanke, 2009).
ECB executive board member
Lorenzo Bini Smaghi
describes QE similarly:
“When the central bank decides to expand the size of its balance
sheet, it has to choose which assets to buy. In theory, it could
purchase any asset from anybody” (Bini Smaghi, 2009).
Both the BOJ in the early 2000s and the BOE in the recent episode
explicitly described their objectives as expanding bank reserves–that
is, QE–rather than easing credit market conditions. The BOE described
its policy in this manner even though its purchases of medium- and
would tend to reduce the corresponding interest rates.
(8) The ECB and BOJ have recently initiated lending programs that could
also be considered “pure” QE in the sense that they targeted
reserves and typically accepted a wide range of assets as collateral.
PROGRAM DESCRIPTIONS AND MOTIVATIONS
This article focuses on the QE programs in response to the subprime
crisis, but the BOJ created a
/pre·cur·sor/ () something that precedes. In biological processes, a substance from which another, usually more active or mature, substance is formed. In clinical medicine, a sign or symptom that heralds another.
to such programs in 2001 in
response to an extended period of very sluggish economic conditions. On
March 19, 2001, the BOJ changed its main operating target from the
uncollateralized overnight call rate to the outstanding balance of
“current accounts” (i.e., the quantity of bank reserves). The
BOJ announced that it was increasing the target for bank reserves from
to [yen] 5 trillion, which was expected to drive the
overnight call rate from 0.15 percent to zero.
By 2004, the BOJ had incrementally increased the target for bank
reserves to [yen] 30 trillion to [yen] 35 trillion while simultaneously
purchasing public and private debt and communicating the conditions
necessary for exiting the zero interest rate policy (
). On March 9,
2006, the BOJ ended its official QE regime when it reinstated the
uncollateralized overnight call rate as the main policy instrument
(setting the target at 0 percent).
The Japanese experience provides few firm conclusions as to the
potential for QE as a policy instrument. Ito and Mishkin (2006) argue
that the BOJ managed market expectations very poorly from 1998 to 2003,
compromising any potential for success. Central banks would soon have
another opportunity to employ QE to battle very difficult economic
Initial Post-Lehman Brothers Responses (September 2008-November
By late 2008, the delayed indirect effects of the housing price
bubble collapse of 2006 had left financial markets
Abnormal or impaired functioning, especially of a bodily system or social group.
falling, and short-term rates close to zero. Figure 1 illustrates the
convergence of policy rates toward the zero lower bound in late 2008 to
early 2009. Initially, the Fed, BOE, BOJ, and ECB policies focused on
restoring function to dysfunctional financial markets, but concern soon
shifted to stimulating real growth and preventing undesirable
[FIGURE 1 OMITTED]
The Fed and BOE QE programs fundamentally differed from those of
the BOJ and ECB, however, by concentrating on bond purchases rather than
lending directly to banks. Bond markets play a relatively more important
role than banks in the U.S. and U.K. economies, while banks play a
relatively more important role in continental Europe and Japan. Each
central bank chose methods to provide liquidity and support the
financial system that reflected the structure of its respective economy.
in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt’s assets equitably among creditors and, in most
. The financial market
turmoil–soaring risk premia, illiquidity–that followed Lehman
Brother’s September 2008 bankruptcy prompted monetary and fiscal
authorities to provide emergency dollar liquidity to financial and
nonfinancial firms on both sides of the Atlantic. (9) Figure 2 presents
a timeline showing dates on which the central banks announced QE asset
purchases/lending programs. The first wave of such programs (October
2008-May 2009) came on the heels of a wide range of emergency responses
to the Lehman bankruptcy. On September 18, the Fed expanded its
lines with foreign central banks, and on October 13 it
announced that its swap lines with the BOE, ECB, and the
would accommodate any quantity of funds demanded. On September 19,
the U.S. Treasury guaranteed money market mutual fund (
and the Fed created the Asset-Backed Commercial Paper (ABCP) Money
Market Mutual Fund Liquidity Facility, which lent money to banks for the
purpose of purchasing high-quality ABCP. (10) On October 7, the Fed
created the Commercial Paper Funding Facility (
cost plus fixed fee
) to directly
purchase high-quality commercial paper. The ECB announced on September
29, 2008, that on that day it would begin a 1-month “special term
operation … to improve the overall liquidity position of
the euro area banking system.” Although the Fed previously had
responded to the financial crisis (e.g., implementing the Term Auction
Facility), these actions were the first unsterilized policy
actions–that is, the first Fed actions that were allowed to unusually
expand the monetary base (see the boxed insert).
The ECB’s Fixed-Rate Tender, Full-Allotment Programs. The
3-month Euribor/overnight indexed swap (
) spread widened as financial
conditions deteriorated. On October 10, 2008, the spread hit an all-time
high of 198 basis points, which reflected the sharp rise in perceived
. (11) The ECB responded to these widening spreads on
October 15, 2008, with its first measure of QE: The ECB announced it
would lend as much as banks wanted at a fixed-rate tender–provided the
banks had collateral–while also expanding the list of eligible
collateral. These fixed-rate tender, full-allotment (
reversed the ECB’s conventional policy of offering a fixed
of funds at rates determined by the bidding process. (12)
The ECB implemented the FRFA liquidity provision through its usual
lending procedures. In normal times, the ECB’s primary policy
instrument is refinancing operations, direct lending to banks against
eligible collateral at two maturities. Main refinancing operations
(MROs) have a period of two weeks and longer-term refinancing operations
(LTROs) have a period of three months. (13) In the usual MROs and LTROs,
the ECB predetermines the amount of funding available and auctions those
funds by price. Under the new policy, the ECB filled all
LTRO Land Title Record Office
LTRO Legal Technology Resource Officer
loan requests at the ECB’s primary policy rate, the main
refinancing rate. From October 2008 to May 2009, the ECB cut this rate
from 4.25 percent to 1 percent. (14)
[FIGURE 2 OMITTED]
Bini Smaghi (2009) calls the FRFA liquidity policy ”
/en·dog·e·nous/ () produced within or caused by factors within the organism.
1. Originating or produced within an organism, tissue, or cell.
credit easing” because banks’ demand for liquidity at the
fixed-rate tender determines liquidity. Figure 3B shows the
lending under MROs and LTROs following the availability of unlimited
funds at the fixed rate in October 2008.
The Fed’s QE1 Programs. While the ECB expanded bank lending
operations, the Federal Reserve pursued outright asset purchases. On
November 25, 2008, the Federal Reserve announced plans to purchase $100
billion in government-sponsored enterprise (
) debt and $500 billion
) issued by those GSEs (Table 1A).
(15) On March 18, 2009, the Fed announced additional purchases of $100
billion in GSE debt, $750 billion in MBS, and $300 billion in long-term
Treasury securities. Figure 3A illustrates the accumulation of agency
and MBS holdings on the Fed balance sheet beginning in November 2008 and
long-term Treasuries beginning in March 2009. Figure 4 reveals that
these purchases roughly doubled the size of the U.S. monetary base.
The Fed’s November 2008 and March 2009 asset purchase
programs–commonly called ”
QEI Quod Erat Inveniendum
QEI Queen Elizabeth Islands
“–were designed to support the
entire economy but they naturally prioritized housing credit markets,
which had been especially hard hit by the 2006-08 fall in U.S. real
estate prices, sales, and construction. Housing GSE debt and MBS
accounted for more than 80 percent of the assets purchased by the
Federal Reserve in its first round of QE, or LSAPs; these assets were
directly linked to housing market credit. (16) The Federal Open Market
Committee (FOMC) stated that the goal of the initial LSAPs was to
“reduce the cost and increase the availability of credit for the
purchase of houses, which in turn should support housing markets and
foster improved conditions in financial markets more generally.”
(17) Gagnon et al. (2011a) report that the November 2008 and March 2009
purchases lowered long-term real U.S. interest rates through their
effect on term premia. These purchases substantially increased excess
The Bank of Japan’s Special-Funds-Supplying Operations.
Following closely on the heels of the Fed’s November 25 asset
purchase release, the BOJ announced on December 2, 2008, that it would
lend unlimited amounts to banks at near-zero rates through
special-funds-supplying operations (SFSOs), which were much like the
ECB’s lending operations. The SFSOs offered 3-month loans to banks
at the uncollateralized overnight call rate, which was then at 0.3
percent. The only limit on the size of the loans from the BOJ to banks
was the amount of available collateral (commercial paper and corporate
debt). The SFSOs, like the ECB’s FRFA
See repurchase agreement (RP).
auctions, constituted QE because they increased the monetary base. On
December 19, 2008, the BOJ followed this action by lowering the
overnight call rate to 0.1 percent and announcing an increase in
outright purchases of Japanese government bonds (JGBs) and a new program
to purchase corporate financial instruments. (18) BOJ assets did not
increase sharply in December 2008 (see Figure 3D), though the BOJ’s
balance sheet did begin to expand after this point.
The Bank of England’s Programs. After some initial reluctance
to engage in credit easing or QE, U.K. authorities announced plans to
purchase assets for these purposes in January and March 2009. On January
19, 2009, Her Majesty’s (HM) Treasury announced the establishment
of the Asset Purchase Facility (
n the abbreviation for acidulated phosphate fluoride.
), which was to be operated by the
BOE. The BOE conducted two separate and distinct asset purchase programs
through this newly established APF: private asset purchases to ease
specific credit conditions and more traditional QE for monetary
[FIGURE 3A OMITTED]
HM Treasury’s January 19, 2009, announcement inaugurated the
private asset purchase program; it authorized the BOE to buy up to 50
billion [pounds sterling] in “high quality private sector
assets” to “increase the availability of corporate credit, by
reducing the illiquidity of the underlying instruments.” (19)
Because HM Treasury issued (sold) short-term gilts to finance the
purchases, every asset that the BOE purchased was matched by a sale of a
short-term gilt and so the BOE’s liabilities (the monetary base)
did not initially increase. That is, this was not initially QE.
The BOE later described its private asset purchases as “an
example of the Bank acting as market maker of last resort” (BOE,
2012). The BOE likewise purchased corporate bonds through a reverse
bid on the price at which they would
sell assets to the BOE. (20) The program was designed so the BOE’s
appeal as a
would diminish as market conditions improved.
In a program similar to the Fed’s CPFF, the BOE purchased
commercial paper at a fixed spread above the local risk-free OIS rates,
which established a floor for the price of high-quality commercial
paper. In both the United States and United Kingdom, the presence of a
market maker of last resort quickly restored market functioning and the
price floor established by the purchase programs did not bind for long.
Ultimately, neither the Fed nor the BOE purchased large quantities of
private assets. The BOE’s private asset holdings peaked in 2009:Q2
at less than 3 billion [pounds sterling], or 6 percent of the 50 billion
[pounds sterling] ceiling announced in January 2009. (21)
[FIGURE 3B OMITTED]
On March 5, 2009, the BOE announced that the APF would administer
an explicit QE program that targeted a 75 billion [pounds sterling]
increase in the monetary base, which in later announcements (through
November) would expand to 200 billion [pounds sterling]. The BOE’s
Red Book states, “[T]he objective of Quantitative Easing is to
boost the money supply through large-scale asset purchases and, in doing
so, to bring about a level of nominal demand consistent with meeting the
inflation target in the medium term” (BOE, 2012, p. 10). (22) The
BOE directed QE purchases toward the deep and liquid markets in medium-
and long-term gilts. To increase the monetary base, the BOE financed all
new APF purchases by issuing money (central bank reserves) rather than
issuing gilts. The short-term gilts issued to finance earlier purchases
were allowed to mature without renewal, and by the end of 2009:Q2 bank
reserves backed all assets held in the
any primate of the subfamily Hominoidea, with the possible exception of humans. The small apes, the gibbon and the siamang, and the orangutan, one of the great apes, are found in SE Asia.
(23) Figure 4 shows that the
BOE’s QE program almost quadrupled the U.K. monetary base within a
few months as bond purchases replaced longer-term reverse repos.
[FIGURE 3C OMITTED]
Purchase Program. Despite the generous supply
of (full-allotment) loans at low rates, concerns over counterparty risk
any contagious, malignant, epidemic disease, in particular the bubonic plague and the black plague (or Black Death), both forms of the same infection.
European interbank markets. (24) By early 2009 lack
of confidence in banks had dried up interbank lending (Beirne et al.,
2011). The ECB–a relative latecomer to asset purchase
programs–responded on May 7, 2009, by reducing its main refinancing
rate to 1 percent and by introducing 12-month LTROs and the covered bond
purchase program (
). (25) The 12-month LTROs were created to address
commercial bank preferences to borrow at longer maturities. Figure 3B
illustrates an immediate and persistent shift away from MROs toward
LTROs in May 2009. Covered bond purchases are included in the category
“Securities Held for Monetary Policy Purposes” in Figure 3B.
What are covered bonds and how do they differ from other
securities? Covered bonds differ from other asset-backed securities in
two ways: (i) In the event of a bond default, covered bondholders have
to the issuer of the bond, as well as the underlying collateral
pool (thus the term “covered”); and (ii) banks must hold the
underlying collateral on their balance sheet, which reduces the
incentives to make and
low-quality loans. Issuing
long-maturity covered bonds helps banks to alleviate the maturity
they usually face between the long-term loans they hold as
assets and the on-demand deposits they hold as liabilities. These
1. Advantageous; helpful:
2. Encouraging; propitious:
characteristics helped the covered bond market to grow
strongly and become an important source of funding for European banks:
from 1.5 trillion [euro] in 2003 to 2.4 trillion [euro] by the end of
2008 (Beirne et al., 2011).
[FIGURE 3D OMITTED]
Although the covered bond market functioned well throughout most of
the financial crisis, the Lehman Brothers bankruptcy in September 2008
seriously impaired even this market. In response, on May 7, 2009, the
ECB committed to purchase 60 billion [euro] in covered bonds, or roughly
2.5 percent of the outstanding bonds.
president of the ECB,
Impervious to pleas, appeals, or reason; stubbornly unyielding. See Synonyms at inflexible.
1. A stone once believed to be impenetrable in its hardness.
2. An extremely hard substance.
maintained that the program was not QE
and would not expand the ECB’s balance sheet. Rather, Trichet
stated that he expected “automatic
” as the
covered bond purchases would
1. Of the same size, extent, or duration as another.
2. Corresponding in size or degree; proportionate:
reduce demand for the
a. Easily resuming original shape after being stretched or expanded; flexible. See Synonyms at flexible.
b. Springy; rebounding.
supplied LTROs. Trichet justified the program in terms of
credit easing: “[T]he idea is to
the market, which has been
very heavily affected, and all that goes with this revival, including
the spreads and the depth and the liquidity of the market.” (26)
The results of the CBPP and LTRO expansion were mixed. The 60
billion [euro] in ECB purchases stimulated 150 billion [euro] in
issuance, though much of the new issuance represented a switch from
uncovered bond to covered bond issuance. (27) ECB LTRO announcements
failed to reduce credit risk, with one exception: The May 7, 2009,
LTRO/CBPP announcement reduced
credit default swap
rates on the Markit
iTraxx index of senior (subordinated) debt issued by the 25 largest
European finance firms by roughly 28 (14) basis points.
[FIGURE 4 OMITTED]
BOJ Bond Purchases. The BOJ also expanded its FRFA bank loans into
outright bond purchases. On December 19, 2008, the BOJ increased its
monthly purchases of JGBs for the first time since October 2002 (28) and
announced interest in purchasing corporate finance instruments. The BOJ
followed up by announcing reverse-auction purchases of up to [yen] 3
trillion in commercial paper and [yen] 1 trillion in corporate bonds on
January 22, 2009, and February 19, 2009, respectively. As with the
Fed’s and BOE’s purchases of corporate finance instruments,
the existence of a regular buyer increased prices by reducing liquidity
risk; more buyers for the assets emerged and trade resumed. Offers to
sell to the BOJ quickly
v. di·min·ished, di·min·ish·ing, di·min·ish·es
a. To make smaller or less or to cause to appear so.
. On March 18, 2009, the BOJ increased
purchases to an annual rate of [yen] 21.6 trillion.
Summary. Although all four central banks announced outright asset
purchases from the fall of 2008 through the spring of 2009, the Fed and
BOE targeted large amounts of assets to purchase, but the ECB and BOJ
chose to ease their monetary policy stance primarily by elastically
supplying loans. Their outright asset purchases were generally small and
targeted specific assets. The ECB’s and BOJ’s use of bank
loans, rather than bond purchases, to expand the monetary base reflects
both the desire to specifically support their banking sectors, hit hard
by the financial crisis, and the relatively greater importance of banks,
as opposed to bond markets, in Europe and Japan. At the end of 2007, the
U.S. (European) stock of outstanding bank loans to the private sector
totaled 63 percent (145 percent) of gross domestic product (
(guanosine diphosphate): see guanine.
contrast, outstanding debt securities in the United States (Europe)
accounted for 168 percent (81 percent) of GDP (Bini Smaghi, 2009).
One should note that elastic loan provision and bond purchase
programs could affect asset prices differently: Bernanke (2002), for
example, argues that low-cost loans will reduce risk premia and
illiquidity in all assets that are eligible collateral, but public bond
purchases will influence only the risk-free component of interest rates.
Intermission (December 2009-July 2010)
During the December 2009-July 2010 period, market conditions
improved and the initial phase of the U.S. and U.K. QE programs
announced in the fall of 2008 and spring of 2009 wound down, finishing
by the end of 2010:Q1. At the same time, the BOJ and ECB backed off from
elastically supplying liquidity. The European sovereign debt crisis,
however, would soon prompt the ECB to resume asset purchase operations
during this period.
The BOJ Ends SFSOs. On December 1, 2009, the BOJ announced
fixed-rate operations (FROs) intended to replace the SFSOs–elastic
provisioning of liquidity–set to expire at the end of 2010:Q1. FROs
differed from SFSOs in that the loan quantities were fixed in the
former, though a broader class of assets was eligible as collateral. The
FROs were originally set at [yen] 10 trillion in 3-month maturities and
expanded to [yen] 20 trillion in March 2010 as the SFSOs ended. An
additional [yen] 10 trillion was allocated to 6-month maturities on
August 30, 2010.
The BOJ Opens the Growth-Supporting Funding Facility. On April 30,
2010, the BOJ announced that it was investigating possible ways to
foster growth by providing funds directly to private financial
institutions. The BOJ released a preliminary framework for the
Growth-Supporting Funding Facility (GSFF) on May 21, 2010, and full
details of the facility on June 15, 2010. Eligible
[Middle English, probably from Old Norse fr
could submit proposals for investment or lending projects that would
“support strengthening the foundations for economic growth.”
(29) Accepted proposals received 1-year loans, which through rollovers
could be extended to a maximum of 4 years. The BOJ capped the quantity
of loans at [yen] 3 trillion and fixed the interest rate to the
prevailing policy rate at
The ECB Announces the Securities Markets Programme. In May 2010,
the escalating sovereign debt crisis
tr.v. dis·rupt·ed, dis·rupt·ing, dis·rupts
1. To throw into confusion or disorder:
markets (De Pooter, Martin, and Pruitt, 2012). On May 10, 2010, the ECB
announced the Securities Markets Programme (
), which allowed the ECB
to purchase government debt in the secondary market. (30) The ECB did
not acknowledge any intent to support the sovereign debt issuance of its
member countries. Rather, it explained its motives for the SMP program
as follows: “to ensure depth and liquidity in those market segments
which are dysfunctional. The objective of this program is to address the
intr.v. mal·func·tioned, mal·func·tion·ing, mal·func·tions
1. To fail to function.
2. To function improperly.
1. Failure to function.
of securities markets and restore an appropriate monetary
policy transmission mechanism.” (31) The SMP differed in several
important dimensions from other asset purchase programs.
First, the scope and size of the interventions were to be
determined on an as-needed basis. Purchases were not preannounced but
markets were left to infer whether the European Monetary Union was
buying bonds until the following Tuesday when the ECB’s balance
sheet was released (De Pooter, Martin, and Pruitt, 2012). (32) Second,
the ECB announced that the asset purchases would be
tr.v. ster·il·ized, ster·il·iz·ing, ster·il·iz·es
1. To make free from live bacteria or other microorganisms.
“ensure that the monetary policy stance [would] not be
affected.” For this purpose, the ECB would conduct “specific
operations … to re-absorb the liquidity injected through the
Securities Markets Programme.” (33) Indeed, Figure 4 shows that the
European Monetary Union monetary base did not increase from July 2010 to
July 2011. Therefore, the SMP does not fall under the usual definition
The SMP purchases appear to have helped hold down yields on euro
debt. In particular, observers credited ECB purchases with reducing
yields on Spanish and Italian debt in August 2011. (34) As of December
7, 2012, the ECB held 208.5 billion [euro] in euro area
/pe·riph·ery/ () an outward surface or structure; the portion of a system outside the central region.periph´eral
v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates
To gather or pile up; amass. See Synonyms at gather.
To mount up; increase.
under the SMP.
Given that the SMP purchases were sterilized and directed at
markets whose functioning was
not stopped or disrupted by anything
Adj. 1. unimpeded – not slowed or prevented; “a time of unimpeded growth”; “an unimpeded sweep of meadows and hills afforded a peaceful setting”
, except for concerns about the
fundamental value of the assets, some would argue that the SMP amounted
allotment of scarce supplies, usually by governmental decree, to provide equitable distribution. It may be employed also to conserve economic resources and to reinforce price and production controls.
but not monetary policy. (35)
It is worth noting that the financial crisis, sovereign debt
crisis, and banking problems in Europe are intimately linked. The
financial crisis created a recession that reduced tax revenues and
growth and raised social spending, thus significantly exacerbating
existing budget problems and increasing the risk associated with
European debt. Because banks traditionally hold substantial quantities
of sovereign debt, riskier sovereign debt compromised the
private banks and exacerbated
markets. At the same time, the fact that governments insured bank
deposits meant that bank failures would inevitably increase sovereign
QE Resumes (August 2010-Present)
The Fed Pursues QE2. Serious financial market disorder had receded
by the second half of 2010, but real activity remained sluggish. In
particular, Figure 5 illustrates that the United States faced a
worrisome disinflationary trend as U.S. consumer price index inflation
dipped toward 1 percent. On August 10, 2010, the Fed announced that it
would maintain the size of its balance sheet by reinvesting the
principal payments on LSAP assets into Treasuries. The FOMC also began
to signal that it was considering further asset purchases: In a speech
on August 27, 2010, Chairman Bernanke suggested that the Fed could
purchase more assets, should conditions warrant. The September 21, 2010,
FOMC statement reiterated the concern that inflation was “likely to
tr.v. sub·dued, sub·du·ing, sub·dues
1. To conquer and subjugate; vanquish. See Synonyms at defeat.
2. To quiet or bring under control by physical force or persuasion; make tractable.
for some time before rising to levels the Committee
considers consistent with its mandate.” Having signaled its
intentions, the FOMC finally announced on November 3, 2010, that it
would purchase an additional $600 billion in U.S. Treasuries to
“promote a stronger pace of economic recovery and to help ensure
that inflation, over time, is at levels consistent with its
[FIGURE 5 OMITTED]
This program, usually called “QE2,” was explicitly
designed to lower long-term real interest rates and increase the
inflation rate to levels deemed more consistent with the Fed’s
mandate from Congress. Figure 3A illustrates the growth in long-term
Treasuries held by the Federal Reserve following this announcement,
while Figure 4 shows the effect on the monetary base starting at the
beginning of 2011.
Financial markets widely expected the November 2010 asset purchase
announcement: In a Reuters poll conducted October 5, 2010, 16 of 16
primary dealers expected the Fed to ease monetary policy and 14 of 15
expected the announcement to be made at the November 3 FOMC
meeting. This anticipation meant that asset prices had already adjusted
to these expectations and did not change much when the announcement
finally came. (37)
The widespread expectation of renewed Fed asset purchases was in
sharp contrast to the surprise that greeted Fed asset purchase
announcements in November 2008 and March 2009. Neely (2012), for
example, reports that 10-year constant maturity Treasury yields fell by
a cumulative 94 basis points over the eight events that importantly
shaped QE1 expectations. By contrast, 10-year yields cumulatively rose
slightly around the set of important QE2 announcements. These patterns
the importance of evaluating program effectiveness based on
the events that changed expectations of future purchases, which are not
necessarily the events in which purchases were announced.
The BOJ Announces Comprehensive Monetary Easing. On October 5,
2010, the BOJ announced the Asset Purchase Program (
QE2, but broader–as part of a comprehensive monetary easing policy.
Comprehensive monetary easing consisted of three measures: (i) lowering
the target for the uncollateralized overnight call rate from 0.10
percent to 0-0.10 percent, (ii) clarifying the conditions for exiting
the ZIRP, and (iii) establishing the APP. The APP included plans to
purchase a wide array of assets, including short- and long-term
government securities, commercial paper, corporate bonds,
exchange-traded funds (ETFs), and Japanese real estate investment trusts
(J-REITs). (38) The BOJ purchased a range of private assets–rather than
just public debt–to reduce the spread between private and (already very
low) sovereign debt yields. The BOJ stated that the goal of its
purchases was to “encourage the decline in longer-term interest
rates and various risk premia to further enhance monetary easing.”
(39) The BOJ’s targeting of private risk premia contrasted with the
Fed’s QE2 focus on long-term Treasuries to affect term premia. (40)
The third panel of Figure 4 shows the monetary consequence of the APP as
the rise in the monetary base in late 2010-early 2011.
The BOJ initially set the size of the APP at [yen] 35 trillion,
which included the existing [yen] 30 trillion in FRO loans plus [yen] 5
trillion in new asset purchases. In 2011, the BOJ increased the size of
asset purchases by a total of [yen] 15 trillion. On August 4, 2011, it
added an additional [yen] 5 trillion in 6-month loans through FROs.
The BOI Expands the GSFE On June 14, 2011, the BOJ extended the
GSFF to include an additional [yen] 500 billion credit line for
investments in equity and
. The loans had a 2-year
maturity but could be roiled over only once.
The Fed Twists Again. The late summer of 2011 brought renewed fears
of recession in the United States and financial stress indexes spiked.
In response, the Fed announced a third round of long-term Treasury
purchases, officially termed the Maturity Extension Program and
Policy, on September 21, 2011. The program was nicknamed
“Operation Twist” because the Fed sold $400 billion in
short-term assets while purchasing $400 billion in long-term assets,
which was intended to reduce long-term interest rates relative to
short-term interest rates, thus “twisting” the yield curve.
Operation Twist did not expand the monetary base because the long-term
asset purchases were funded by short-term asset sales rather than money
creation. At the same meeting, the FOMC also announced it would begin
reinvesting maturing MBS and agency debt in MBS rather than Treasuries.
Central banks have tried similar programs before. The Federal
1. In a way or to an extent that is well known: lampooned in the novels of Evelyn Waugh”
attempted to influence the long end of the yield curve
in a previous Operation Twist in the early 1960s. Modigliani and Sutch
(1966) found that this earlier attempt to bring down long rates was, at
best, moderately successful, probably because the purchases were
insufficiently large and offset by new Treasury issuance (Blinder,
The ECB Extends LTROs/CBPP. The European sovereign debt crisis
continued to disrupt European and U.S. markets in the fall of 2011. In
response, on October 6, 2011, the ECB announced a second round of the
CBPP and additional 12-month LTROs to provide bank funding. On December
8, 2011, the ECB announced auctions of 36-month LTROs. Figure 3B
illustrates the increase in LTRO lending and covered bond purchases,
while Figure 4 reveals their effect on the European Monetary Union
Buiter and Rahbari (2012) speculate that the 36-month LTROs
announced in December 2011 were not intended to merely provide
liquidity, as was their stated purpose, but instead to inexpensively
fund the purchase of sovereign debt while permitting the ECB to
verb 1. , keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful
its charter. Regardless of whether the ECB intended the LTROs to
support sovereign debt purchases, Buiter and Rahbari (2012) argue that
various forms of financial
in psychology: see defense mechanism; psychoanalysis.
In metabolism, a control mechanism by which a protein molecule, called a repressor, prevents the synthesis of an enzyme by binding to (and thus hindering the action of) the
have produced this result.
The BOE Extends QE. The BOE joined the ECB in acting on October 6,
2011. Concerned that it would
A temporary decrease below the final steady-state value that may occur immediately following the removal of an influence that had been raising that value.
its inflation target, the BOE
increased the QE target from 200 billion [pounds sterling] to 275
billion [pounds sterling]–the first increase in purchases in nearly two
years–increasing the monetary base to fund all APF purchases. On
February 9, 2012, the BOE again increased the target, this time to 325
billion [pounds sterling]. With GDP contracting in 2011:Q4 and 2012:Q1,
the BOE announced on July 5, 2012, that it would increase the size of QE
yet again, to 375 billion [pounds sterling]. Figures 3C and 4 illustrate
the renewed growth in BOE assets and the U.K. monetary base that began
in late 2011 following the announcement of additional QE measures.
BOJ Expands APP/GSFF. In a fashion similar to that of the BOE, the
BOJ also significantly increased its government debt purchases from fall
2011 through 2012. From October 2011 to December 2012, the BOJ announced
an additional [yen] 60 trillion in JGB and Treasury bill purchases and
[yen] 1 trillion in private asset purchases as part of its APP. (42) The
BOJ also expanded the GSFF program on March 13, 2012–from [yen] 3.5
trillion to [yen] 5.5 trillion–adding [yen] 1 trillion in U.S.-dollar-
denominated loans and [yen] 0.5 trillion in small-lot loans available in
amounts as low as [yen] 1 million. Perhaps as a result, the BOJ noted in
its September 19, 2012, monetary policy announcement that
“Japan’s economy registered relatively high growth in the
first half of 2012, supported by the firmness in domestic demand”
but that inflation remains around 0 percent. (43)
The Fed Extends Operation Twist, Introduces QE3. While Japan saw
solid growth in the first half of 2012, U.S.
significantly slower than expected during the spring and summer.
Speculation began to mount that the Fed would pursue additional easing.
On June 20, 2012, the Fed announced that it would extend its
Maturity Extension Program that committed the Fed to buy long Treasuries
and sell an equivalent quantity of short Treasuries through the end of
the year. Final purchases under the Maturity Extension Program had
originally been scheduled for the end of June. The additional purchases
(and sales) continued at the same pace and were expected to total $267
Despite this effort, the
A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience
remained sluggish. At his
fertile Rocky Mt. valley, c.50 mi (80 km) long and 6 to 8 mi (9.6–12.8 km) wide, NW Wyo., partly in Grand Teton National Park. Jackson Lake, 39 sq mi (101 sq km), a natural lake through which the Snake River flows, was dammed in 1916 to control
speech, Chairman Bernanke acknowledged that
of the labor market in particular is a grave
concern” and that “the Federal Reserve will provide additional
prn. See prn order.
As was widely expected, on September 13, 2012, the FOMC announced a
third round of quantitative easing, or QE3. (45) Unlike in its previous
QE programs, however, the Fed committed to a pace of purchases rather
than a total quantity. It would purchase $40 billion MBS per month and
continue (or if warranted expand) purchases as long as “the outlook
for the labor market does not improve substantially … in a context of
price stability.” (46) The conditional structure of the program
reflects Bullard’s (2010) argument that ”
/anal·o·gous/ () resembling or similar in some respects, as in function or appearance, but not in origin or development.
rate policy, quantitative policy should be state contingent; that is, it
should adjust to incoming information on the state of the economy”
On December 12, 2012, the FOMC announced that long-term Treasury
purchases under the Maturity Extension Program would continue at the
pace of $45 billion/month, but such purchases would no longer be
sterilized through the sale of short-term Treasuries. Hence, the
purchases previously made under the
Plural of auspex.
under the auspices of with the support and approval of [Latin auspicium augury from birds]
of the Maturity Extension
Program would continue, but with the additional effect of expanding the
The ECB Replaces the SMP with Outright Monetary Transactions. The
European sovereign debt crisis continued into the summer of 2012, with
the solvency of Spain and Italy and the viability of the euro coming
into question. On August 2, 2012, ECB President
that the ECB would expand its sovereign debt purchases and directly
addressed concerns over the euro: “The euro is
adj incapable of being reversed or returned to the original state.
On September 6, 2012, the ECB announced the operational details for
a program of outright monetary transactions (OMTs) to replace the
program allows the ECB to purchase euro area sovereign debt
in the secondary market if the sovereign abides by the required
conditions. (49) This requirement potentially addresses a shortcoming of
the SMP: the ECB’s lack of a mechanism for enforcing conditions for
receiving support. As with the SMP transactions, the OMTs will be
sterilized and will not affect the monetary base.
BOJ Reintroduces Unlimited Liquidity Provision. Despite relatively
high growth in the first half of 2012, the Japanese economy once again
contracted in the third quarter of 2012. On October 30, 2012, the BOJ
announced an additional [yen] 11 trillion in public and private asset
purchases through the APP and that it was establishing a framework for
the “Stimulating Bank Lending Facility” (SBLF). Through this
facility, the BOJ offers to fund up to 100 percent of
intuitions’ net increase in lending to the nonfinancial sector. The
loans are available at maturities of 1 to 3 years and can be rolled over
to obtain a maximum duration of 4 years, with interest rates set equal
to the target for the uncollateralized overnight call rate at the time
(0.1 percent as of December 2012). The only limit
on the size of the loans is the quantity of eligible collateral, and in
its December 20, 2012, monetary policy statement the BOJ announced that
based on current lending statistics, it expects to extend at least [yen]
15 trillion in loans through the
Together, the SBLF and GSFF
comprise what the BOJ calls the “Loan Support Program.” (50)
On December 16, 2012, Japan elected
as its next prime
minister. Abe campaigned on a platform of monetary policy accommodation
1. The act of deflating or the condition of being deflated.
2. A persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money because of a reduction in available
conditions and advocates a 2 percent
inflation target for the BOJ rather than the current 1 percent target.
The new political regime has caused many to speculate that the
BOJ’s independence is at risk (e.g., Kihara, 2012).
Summary. In summary, from 2008 through 2012, three central banks
(the BOE, BOJ, and ECB) purchased assets with private credit risk
exposure, removing such risk from the public’s balance sheet. (51)
Three central banks (the Fed, BOJ, and BOE) attempted to use asset
purchases to stimulate the economy through traditional interest rate
channels by purchasing long-term assets, reducing the amount of duration
held by the public and thus lowering long-term real interest rates. All
four central banks used asset purchases to improve the functioning of
ASSET PURCHASE PROGRAM SIZE AND BREAKDOWN
This section describes and compares the sizes and composition of
the asset purchase programs for the four central banks. Table 2
summarizes the size of asset purchase programs relative to market and
economy size. The Fed’s asset purchase programs were the largest in
, but the BOJ programs were the largest as a percentage of
[FIGURE 6 OMITTED]
The Federal Reserve
As of the end of 2012, the Federal Reserve has purchased $1.567
trillion in long-term government bonds, $1.41 trillion in MBS, and $175
million in GSE debt, for a total of $3.152 trillion in purchases. In
addition, the Fed will continue to purchase MBS at a pace of $40 billion
per month and long-term Treasuries at a pace of $45 billion per month in
2013. New reserve issuance has or will fund all these purchases, except
for $667 billion of Treasury purchases in Operation Twist that were
funded by sales of shorter-term securities.
[FIGURE 7 OMITTED]
The U.S. purchases can be separated into four distinct programs:
QE1 ($1.725 trillion, announcements 2008-09), QE2 ($600 billion,
announcement 2010), Operation Twist ($667 billion, announcement 2011 and
extension 2012), and QE3 ($85 billion per month, announcements 2012).
Since the initial purchases, the Federal Reserve has maintained the size
of its balance sheet by reinvesting principal payments from maturing
assets. Originally, all maturing assets were reinvested in Treasuries,
but the FOMC later decided to
tr.v. re·in·vest·ed, re·in·vest·ing, re·in·vests
To invest (capital or earnings) again, especially to invest (income from securities or funds) in additional shares.
maturing MBS and GSE debt in MBS.
(52) Despite the approximate tripling of the monetary base (see Figure
4), the broader monetary aggregates have increased at healthy but normal
rates because banks have chosen to greatly increase their desired levels
The Bank of England
BOE QE asset purchase announcements can be
tr.v. cat·e·go·rized, cat·e·go·riz·ing, cat·e·go·riz·es
To put into a category or categories; classify.
distinct episodes. In the first episode, the BOE initially announced a
ceiling of 75 billion [pounds sterling] in purchases on March 5, 2009,
and then raised that ceiling to 200 billion [pounds sterling] by
November 2009. On August 6, 2009, the BOE announced it would expand
purchases into gilts with remaining maturities of 3 to 5 years and
25-plus years to accommodate the increased size of the purchases. On
February 4, 2010, the first stage of purchases ended and the BOE
announced that Treasury issuance, not money creation, would fund any new
purchases, including any private asset purchases. The second stage of
purchases began on October 6, 2011, when the BOE raised the asset
purchase ceiling to 275 [pounds sterling] billion and announced that
monetary expansion would again fund new purchases. The BOE expanded the
APF again on February 9, 2012, and July 5, 2012, setting the ceiling at
325 [pounds sterling] and 375 billion [pounds sterling], respectively.
In addition to the ceiling of 375 billion [pounds sterling] in
assets financed by reserve issuance, the BOE is authorized to purchase
up to 10 billion [pounds sterling] in private assets financed by
Treasury issuance. (53) As the bottom panel of Figure 6 reveals, the BOE
has never held more than 3 billion [pounds sterling] in private
assets-total commercial paper plus total corporate bonds–at
quarter’s end. The top panel of Figure 6 shows that gilt purchases
accounted for almost all of the BOE’s balance sheet expansion. At
the close of 2012:Q3, the BOE held 360 billion [pounds sterling] in
gilts and only 100 million [pounds sterling] in corporate bonds.
The Bank of Japan
The BOI has purchased or made plans to purchase almost [yen] 187
trillion in total assets over the January 2009-December 2012 period.
Close to 40 percent of this quantity, however, is a legacy from the
BOJ’s QE policies in the early 2000s. The BOI began purchasing JGBs
(government bonds with maturities of 2 to 40 years) outright in the
1990s, and these monthly purchases reached [yen] 1.2 trillion in 2002.
Figure 3D shows that when the BOJ exited from QE in March 9, 2006, it
reduced its balance sheet by letting short-term assets (ZIRP bills)
mature without replacement. The BOJ kept purchasing JGBs at a pace of
[yen] 1.2 trillion per month, and the size of JGB holdings on the
BOI’s balance sheet declined only gradually. (54) As of December 1,
2008, the BOJ was already purchasing [yen] 1.2 trillion in IGBs per
month under its previous policy. With no changes to this pace, the BOI
would have purchased [yen] 72 trillion in IGBs from January
2008-December 2012 (60 months x [yen] 1.2 trillion per month).
Since January 2009, the BOJ has purchased or made plans to purchase
[yen] 115 trillion in assets. Additional monthly JGB purchases, in
excess of the [yen] 72 trillion in IGBs that would have been purchased
at the [yen] 1.2 trillion per month pace, total [yen] 34.8 trillion over
the January 2008December 2012 period. (55) The purchases of corporate
financing instruments were much smaller, accounting for [yen] 4 trillion
in purchases, of which [yen] 3 trillion was for commercial paper and
[yen] 1 trillion for corporate bonds.
The APP, announced in October 2010 and subsequently expanded on
nine occasions, accounts for the remaining [yen] 76 trillion in asset
purchases. Of the [yen] 76 trillion in assets that the BOJ cumulatively
plans to purchase under the
[yen] 44 trillion is in JGB, [yen] 24.5
trillion in Japanese Treasury discount bills, [yen] 3.2 trillion in
corporate bonds, [yen] 2.2 trillion in commercial paper, [yen] 2.1
trillion in ETFs, and [yen] 0.13 trillion in J-REITs. (56) Note, though,
that the asset purchases were announced in nine increments of [yen] 5
trillion to [yen] 11 trillion with varying asset composition. Since
August 4, 2011, the BOJ has increased JGB and Treasury discount bill
purchases by a total of [yen] 60 trillion and private asset purchases by
only [yen] 1.21 trillion. As of December 2012, the BOJ intends to
complete its announced APP purchases by the end of 2013. (57)
The European Central Bank
The two ECB CBPPs have been comparatively modest in total size,
though they represent larger purchases of private assets than any other
central bank. The ECB announced the purchase of 60 billion [euro] in
euro-denominated covered bonds in 2009 and 40 billion [euro] in similar
purchases in 2011, for a total of 100 billion [euro]. The ECB never
announced a target for sovereign debt purchases under the SMP, but the
bank’s balance sheet implies that these purchases cumulatively sum
to around 220 billion [euro] at their peak. Figure 7 shows that the bulk
of these purchases were made during two episodes: (i) the spring/summer
of 2010 (with a focus on Greek, Irish, and Portuguese debt) and (ii) the
summer to fall of 2011 (with a focus on Italian, Spanish, Portuguese,
and Irish debt and no purchases of Greek debt). (58) The total ECB asset
purchases–including sovereign debt purchases–total roughly 320 billion
[euro]. As mentioned previously, most of these purchases have been
sterilized, reversing their effects on the monetary base. The path of
the European Monetary Union’s monetary base reflects extensions of
the LTRO program.
Central banks responded to the 2007-09 financial crisis with a
series of policies that included emergency liquidity programs and
reduction of their traditional short-term policy rates to near zero.
Financial markets were still troubled, however; real output was
declining or growing only
1. Displaying little movement or activity; slow; inactive:
2. Lacking alertness, vigor, or energy; inert or indolent.
and inflation threatened to fall
below central banks’ desired levels. In response, the central banks
of Japan, the United Kingdom, the United States, and the euro area
responded with policies that greatly expanded their monetary bases,
policies that are commonly called QE. These QE policies were potentially
important to the extent that they allowed central banks to respond
effectively to economic conditions–to ease credit conditions and
provide liquidity–even with short-term interest rates near the zero
research on the effects of QE generally indicates
that it had the desired effects on asset prices but the effects on the
broader economy are much more difficult to
v. dis·cerned, dis·cern·ing, dis·cerns
1. To perceive with the eyes or intellect; detect.
2. To recognize or comprehend mentally.
because it is not
possible to know with any certainty how economic conditions would have
evolved without these policies in place. Despite the abundance of
research on QE policies, there has been little description and
international comparison of the policies of the four central banks that
engaged in QE. This article has described those episodes of QE and
compared policies across central banks.
The QE programs of these four major central banks initially
attempted to reduce financial market distress, but they were soon used
for a variety of purposes, including hitting inflation targets,
stimulating the real economy, and containing the European sovereign debt
crisis. Central banks with more bank-centric economies–the BOJ and
ECB–responded with loans to the banking system, while those where bond
markets are relatively more dominant–the Fed and BOE–responded with
greater quantities of bond purchases.
A remarkable consistency among the monetary expansion policies of
all four central banks is that while all measures led to sharp increases
in the monetary base, none led to sharp increases in broader monetary
aggregates (see Figure 4). The broader aggregates did not increase
because banks voluntarily held the increased monetary base as bank
in high demand during periods of economic
As of December 2012, interest rates are at or near historic lows in
the major economies. As the effects of the housing bubble and financial
crisis wane, however, interest rates will rise and monetary policy will
eventually readjust to
. Although Fed purchases of
specific non-Treasury securities will probably be reserved for unusual
/dys·func·tion/ () disturbance, impairment, or abnormality of functioning of an organ.dysfunc´tional
erectile dysfunction impotence (2).
, it remains to be seen whether “normal”
U.S. or foreign monetary policies will incorporate elements of the
crisis policies, such as purchases of long-term assets. Given the
in favor of
transparent and predictable policy (Poole
and Rasche, 2000), it seems likely there will be pressure to incorporate
such strategies in conditional policy rules if they are to be used
ABCP Asset-Backed Commercial Paper
APF Asset Purchase Facility
APP Asset Purchase Program
BOE Bank of England
BOJ Bank of Japan
CBPP covered bond purchase program
cost, freight, and insurance
corporate finance instruments
CPFF Commercial Paper Funding Facility
ECB European Central Bank
ETFs exchange-traded funds
FOMC Federal Open Market Committee
FRFA fixed-rate, full-allotment
FROs fixed-rate operations
GDP gross domestic product
GSE government-sponsored enterprise
GSFF Growth-Supporting Funding Facility
JGBs Japanese government bonds
J-REITs Japanese real estate investment trusts
LSAP large-scale asset purchase
LTROs longer-term refinancing operations
MBS mortgage-backed securities
MMMF money market mutual fund
MROs main refinancing operations
OIS overnight indexed swap
OMTs outright monetary transactions
QE quantitative easing
SBLF Stimulating Bank Lending Facility
SFSOs special-funds-supplying operations
SMP Securities Markets Programme
ZIRP zero interest rate policy
Policy Statement URLs
The appendix tables provide URLs for the official policy statements
included in Tables 1A-1D and discussed in the text.
Table A1 URLs for Relevant Federal Reserve Policy Statements Date Program URL 11/25/2008 QE1 www.federalreserve.gov/ newsevents/press/monetary/ 20081125 b.htm 12/16/2008 QE1/extended www.federalreserve.gov/ period newsevents/press/monetary/ language 20081216b.htm 1/28/2009 QE1 www.federalreserve.gov/ newsevents/press/monetary/ 20090128a.htm 3/18/2009 QE1/extended www.federalreserve.gov/ period newsevents/press/monetary/ language 20090318a.htm 8/12/2009 QE1 www.federalreserve.gov/ newsevents/press/monetary/ 20090812a.htm 9/23/2009 QE1 www.federalreserve.gov/ newsevents/press/monetary/ 20090923a.htm 11/4/2009 QE1 www.federalreserve.gov/ newsevents/press/monetary/ 20091104a.htm 8/10/2010 QE1 www.federalreserve.gov/ newsevents/press/monetary/ 20100810a.htm 9/21/2010 QE2 www.federalreserve.gov/ newsevents/press/monetary/ 20100921 a.htm 11/3/2010 QE2 www.federalreserve.gov/ newsevents/press/monetary/ 20101103a.htm 6/22/2011 QE2 www.federalreserve.gov/ newsevents/press/monetary/ 20110622a.htm 8/9/2011 Extended www.federalreserve.gov/ period newsevents/press/monetary/ language 20110809a.htm 9/21/2011 Maturity www.federalreserve.gov/ Extension newsevents/press/monetary/ Program 20110921a.htm 1/25/2012 Extended www.federalreserve.gov/ period newsevents/press/monetary/ language 20120125 a.htm 6/20/2012 Maturity www.federalreserve.gov/ Extension newsevents/press/monetary/ Program 20120620a.htm 9/13/2012 QE3/extended www.federalreserve.gov/ period newsevents/press/monetary/ language 20120913a.htm 12/12/2012 QE3/extended www.federalreserve.gov/ period newsevents/press/monetary/ language 20121212a.htm Table A2 URLs for Relevant European Central Bank Policy Statements Date Program URL 3/28/2008 LTRO www.ecb.eu/press/pr/date/ 2008/html/pr080328.en.htm1 10/15/2008 Fixed/rate www.ecb.eu/press/pr/date/ tender, full 2008/html/prO81015.en.html 5/7/2009 allotment CBPP/ www.ecb.int/press/pressconf/ LTRO 2009/html/is090507.en.html 5/10/2010 SNIP www.ecb.eu/press/pr/date/ 2010/html/pr100510.en.html 6/30/2010 CBPP www.ecb.eu/press/pr/date/ 2010/html/pr100630.en.html 10/6/2011 CBPP2 www.ecb.eu/press/pr/date/ 2011/html/pr111006 3.en.html 12/8/2011 LTRO www.ecb.eu/press/pr/date/ 2011/html/pr111208_1.en.html 9/6/2012 OMT www.ecb.eu/press/pr/date/ 2012/html/prl20906_1.en.html Table A3 URLs for Relevant Bank of England (and HM Treasury) Policy Statements Date Program URL 1/19/2009 APF webarchive. nationalarchives.gov.uk/ 20100407010852/ www.hm-treasury.gov.uk/ press_05_09.htm 3/5/2009 APF www.bankofengland.co.uk/ publications/Pages/news/ 2009/019.aspx 5/7/2009 APF www.bankofengland.co.uk/ publications/Pages/news/ 2009/037.aspx 8/6/2009 APF www.bankofengland.co.uk/ publications/Pages/news/ 2009/063.aspx 11/5/2009 APF www.bankofengland.co.uk/ publications/Pages/news/ 2009/081.aspx 11/29/2011 APF www.hm-treasury.gov.uk/d/ chx-letter 291111.pdf 2/4/2010 APF www.bankofengland.co.uk/ publications/Pages/news/ 2010/008.aspx 10/6/2011 APF www.bankofengland.co.uk/ publications/Pages/news/ 2011/092.aspx 11/29/2011 APF www.hm-treasury.gov.uk/d/ chx-letter 291111.pdf 2/9/2012 APF www.bankofengland.co.uk/ publications/Pages/news/ 2012/008.aspx 7/5/2012 APF www.bankofengland.co.uk/ publications/Pages/news/ 2012/066.aspx Table A4 URLs for Relevant Bank of Japan Policy Statements Date Program URL 12/2/2008 SFSOs www.boj.or.jp/en/ announcements/release 2008/ unO812b.pdf 12/19/2008 Outright JGB/ www.boj.or.jp/en/ CFI purchases announcements/release 2008/kO81219.pdf 1/22/2009 Outright www.boj.or.jp/en/ CFI purchases announcements/release 2009/mokO901a.pdf 2/19/2009 Outright www.boj.or.jp/en/ CFI purchases announcements/release 2009/mokO9O2b.pdf 3/18/2009 Outright JGB www.boj.orjp/en/ purchases announcements/release 2009/kO9O318.pdf 7/15/2009 Outright CFI www.boj.orjp/en/ purchases/SFSOs announcements/release 2009/kO9O715.pdf 10/30/2009 Outright CFI www.boj.or.jp/en/ purchases/SFSOs announcements/release 2009/kO9103O.pdf 12/1/2009 FROs www.boj.or.jp/en/ announcements/release 2009/kO91201.pdf 3/17/2010 FROs www.boj.or.jp/en/ announcements/release 2010/k100317.pdf 5/21/2010 GSFF www.boj.or.jp/en/ announcements/release 2010/k100521.pdf 8/30/2010 FROs www.boj.or.jp/en/ announcements/release 2010/k100830.pdf 10/5/2010 APP www.boj.orjp/en/ announcements/release 2010/k101005.pdf 3/14/2011 APP www.boj.orjp/en/ announcements/release 2011/k110314a.pdf 6/14/2011 GSFF www.boj.or.jp/en/ announcements/release 2011/k110614a.pdf 8/4/2011 APP/FROs www.boj.or.jp/en/ announcements/release 2011/k110804a.pdf 10/27/2011 APP www.boj.orjp/en/ announcements/release 2011/k111027a.pdf 2/14/2012 APP www.boj.orjp/en/ announcements/release 2012/kl2O2l4a.pdf 3/13/2012 GSFF www.boj.or.jp/en/ announcements/release 2012/k120313a.pdf 4/27/2012 APP/FROs www.boj.or.jp/en/ announcements/release 2012/k120427a.pdf 7/12/2012 APP/FROs www.boj.or.jp/en/ announcements/release 2012/k120712a.pdf 9/19/2012 APP www.boj.or.jp/en/ announcements/release 2012/k120919a.pdf 10/30/2012 APP/SBLF www.boj.or.jp/en/ announcements/release 2012/k121030a.pdf 12/20/2012 APP www.boj.or.jp/en/ announcements/release 2012/kl21220a.pdf NOTE: CFI, corporate finance instruments (corporate bonds plus commercial paper).
Anderson, Richard G. and Mullineux, Andrew W. “British Banking
in Crisis.” Federal Reserve Bank of St. Louis Economic Synopses,
2009, No. 16, April 3, 2009;
Anderson, Richard G.;
, Charles S. and Liu,
() [Chinese] in Chinese philosophy, the active, positive, masculine principle that is complementary to yin; see yin, under principle.
“Doubling Your Monetary Base and Surviving: Some International
Experience:’ Federal Reserve Bank of St. Louis Review,
November/December 2010, 92(6), pp. 481-505;
Baba, Naohiko; McCauley, Robert N. and Ramaswamy, Srichander.
“U.S. Dollar Money Market Funds and non-U.S. Banks.” BIS
Quarterly Review, March 2009, pp. 65-81.
Bank of England. “The Framework for the Bank of England’s
Operations in the Sterling Money Markets” [The Red Book]. Updated
June 2012; www.bankofengland.co.uk/markets/Documents/money/publications/redbookjune2012.pdf.
Beirne, John; Dalitz, Lars; Ejsing, Jacob; Grothe, Magdalena;
Manganelli, Simone; Monar, Fernando; Sahel, Benjamin; Susec, Matjaz;
Tapking, Jens and Vong, Tana. “The Impact of the Eurosystem’s
Covered Bond Purchase Programme on the Primary and Secondary
Markets.” ECB Occasional Paper Series No. 122, European Central
Bank, January 2011; www.ecb.int/pub/pdf/scpops/ecbocp122.pdf.
Bernanke, Ben S. ”
Contraction in the volume of available money or credit that results in a general decline in prices. A less extreme condition is known as disinflation.
: Making Sure ‘It’
Doesn’t Happen Here.” Speech at the National Economists Club,
Washington, DC, November 21, 2002;
Bernanke, Ben S. “The Crisis and the Policy Response”
Speech at the Stamp Lecture,
London School of Economics
England, January 13, 2009;
Bernanke, Ben S. “Monetary Policy Since the Onset of the
Crisis” Presented at a
sponsored by the
Bank of Kansas City
, “The Changing Policy Landscape,” Jackson
Hole, Wyoming, August 31, 2012;
Bini Smaghi, Lorenzo. “Conventional and Unconventional
See keynote address.
Noun 1. keynote speech – a speech setting forth the keynote
keynote – the principal theme in a speech or literary work
at the International Center for
Monetary and Banking Studies,
, Fr. Genève, canton (1990 pop. 373,019), 109 sq mi (282 sq km), SW Switzerland, surrounding the southwest tip of the Lake of Geneva.
, Switzerland, April 28, 2009;
Blinder, Alan S. “Monetary Policy at the Zero Lower Bound:
Balancing the Risks.” Journal of Money, Credit, and Banking,
November 2000, 32(4 Part 2), pp. 1093-99.
Buiter, Willem H. and Rahbari, Ebrahim. “The ECB as
, May 2012;
Bullard, James. “Three Lessons for Monetary Policy from the
Panic of 2008.” Federal Reserve Bank of St. Louis Review, May/June
2010, 92(3), pp. 155-63;
Chandra, Lokesh and
street in London, England, roughly parallel with the Thames River, running from the Temple to Trafalgar Square. It is a street of law courts, hotels, theaters, and office buildings and is the main artery between the City and the West End.
, Nicholas. “Fed Agency MBS
Purchases as of October 3, 2012.” Barclays Securitisation Research,
October 4, 2012.
Danielsson, Jon and
For some persons thus named use
, Casper. “Money Market on
Strike.” Economists’ Forum (
short for web log, an online, regularly updated journal or newsletter that is readily accessible to the general public by virtue of being posted on a website.
), Financial Times, November
9, 2008; blogs.ft.com/economistsforum/2008/11/money-market-on-strike/#axzz291ASfhQv.
De Pooter, Michiel; Martin, Robert F. and Pruitt, Seth. “A
European Twist: The Efficacy of the Securities Markets Programme.”
Unpublished manuscript, Federal Reserve Board of Governors, March 2012.
Eggertsson, Gauti B. “The Deflation Bias and Committing to
Being Irresponsible.” Journal of Money, Credit, and Banking, March
2006, 38(2), pp. 283-321.
Eggertsson, Gauti B. and Woodford, Michael. “The Zero Bound on
Interest Rates and Optimal Monetary Policy.” Brookings Papers on
Economic Activity, 2003, 1, pp. 139-211.
Gagnon, Joseph; Raskin, Matthew; Remache, Julie and Sack, Brian.
“Large-Scale Asset Purchases by the Federal Reserve: Did They
Work?” Federal Reserve
Bank of New York
Economic Policy Review, May
2011 a, 17(1), pp. 41-59;
Gagnon, Joseph; Raskin, Matthew; Remache, Julie and Sack, Brian.
“The Financial Market Effects of the Federal Reserve’s
Large-Scale Asset Purchases.”
International Journal of Central
, March 2011b, 7(1), pp. 3-43.
Hamilton, James D. and Wu, Jing C. “The Effectiveness of
Alternative Monetary Policy Tools in a Zero Lower Bound
NBER Nittany and Bald Eagle Railroad Company
Working Paper 16956, National Bureau of Economic
Research, April 2011; www.nber.org/papers/w16956.pdf?new_window=1.
Ito, Takatoshi and Mishkin, Frederic S. “Two Decades of
Japanese Monetary Policy and the Deflation Problem,” in Takatoshi
, eds., Monetary Policy under Very Low inflation in
term used to describe the nations bordering the Pacific Ocean and the island countries situated in it. In the post–World War II era, the Pacific Rim has become an increasingly important and interconnected economic region.
. National Bureau of Economic Research-East Asia Seminar
on Economics, September 2006. Volume 1.5. Chicago:
University of Chicago
, 2006, pp. 131-93.
Joyce, Michael A.S.; Lasaosa, Ana; Stevens, Ibrahim and
tr.v. tonged, tong·ing, tongs
To seize, hold, or manipulate with tongs.
[Back-formation from tongs.
Matthew. “The Financial Market Impact of Quantitative Easing in the
United Kingdom.” International Journal of Central Banking,
September 2011, 7(3), pp. 113-61.
. General Theory of Employment, Interest and
Money. London: McMillan and Company, 1936.
Kihara, Leika. “Under Pressure from Abe, Bank of Japan Boosts
Stimulus Again.” Reuters, December 20, 2012;
Kohn, Donald L.”Monetary Policy Research and the Financial
Crisis: Strengths and Shortcomings.” Speech at the Federal Reserve
Conference on Key Developments in Monetary Policy, Washington DC,
October 9, 2009; www.federalreserve.gov/newsevents/speech/kohn20091009a.htm.
[Lat.,=the lion], northern constellation lying S of Ursa Major and on the ecliptic (apparent path of the sun through the heavens) between Cancer and Virgo; it is one of the constellations of the zodiac.
and Thornton, Daniel T. “A Proposal for
Improving Forward Guidance.” Federal Reserve Bank of St. Louis
Economic Synopses, 2012, No. 27, September 28, 2012;
Meyer, Laurence H. and Bomfim, Antulio N. “Quantifying the
Effects of Fed Asset Purchases on Treasury Yields.”
n. (used with a sing. verb)
The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors.
Advisers Monetary Policy Insights: Fixed Income Focus, June 17, 2010.
Minder, Raphael. “Spanish and Italian Bond Yields Drop on
Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
Times, August 9, 2011;
Mishkin, Frederic S. “The Channels of Monetary Transmission:
Lessons for Monetary Policy.” NBER Working Paper No. 5464, National
Bureau of Economic Research, February 1996;
Neely, Christopher J. “The Large-Scale Asset Purchases Had
Large International Effects” Federal Reserve Bank of St. Louis
Working Paper No. 2010-018D, July 2010, revised April 2012;
1918–2003, American economist, b. Rome. Jewish, antifascist, and trained as a lawyer, he fled Mussolini’s Italy in 1938, settling in the United States in 1939, where he studied economics.
and Sutch, Richard. “Innovations in
Interest Rate Policy.” American Economic Review, March 1966,
56(1-2), pp. 178-97.
Poole, William and Rasche, Robert. “Perfecting the
Market’s Knowledge of Monetary Policy.” Journal of
Research, 2000, 18(2-3), pp. 255-98.
Stroebel, Johannes C. and
1578?–1653, English writer. He was a boatman on the Thames and hence is often called the Water Poet. A traveler throughout England and the Continent, he recorded his observations in both poetry and prose.
B. “Estimated Impact of
the Fed’s Mortgage-Backed Securities Purchase Program.” NBER
Working Paper No. 15626, National Bureau of Economic Research, December
(1) The fact that it is costly to store and protect large amounts
of currency means that short-term rates can become slightly negative in
some circumstances. Nevertheless, zero is a reasonable
1. the act or process of bringing into proximity or apposition.
2. a numerical value of limited accuracy.
the lower bound for interest rates.
(2) Anderson, Gascon, and Liu (2010) survey a large cross section
of central banks that have doubled their monetary base, but their work
reflects only the first wave of the recent QE programs.
(3) In the context of borrowing and lending, “adverse
selection” is the tendency of individuals and firms with bad credit
to be more likely to seek loans from banks; and “moral hazard”
is the tendency of borrowers to engage in risky activities that will
make it less likely that they will repay their loans. Both adverse
selection and moral hazard are problems because of the existence of
,” which means that borrowers know
things about their ability to repay that lenders do not.
(4) In 2008 Congress granted the Federal Reserve the authority to
begin paying interest on banks’ excess reserves to improve the New
York Fed’s ability to manage the funds target and remove an
on holding reserves. This action did help to
() indistinctness, clouding, or fogging.
spectacle blur the indistinct vision with spectacles occurring after removal of contact lenses, especially non–gas-permeable lenses; it is
distinction between money and bonds. The Federal Reserve could, however,
increase the distinction between money and bonds by reducing or
eliminating interest on excess reserves or even charging fees for excess
(5) Eggertsson and Woodford’s (2003) model implies that a
central bank should keep interest rates at the zero bound even after
activity recovers to compensate for the fact that interest rates could
not go below zero. This is subtly different from a commitment to be
(6) There is a potential
to a commitment to low interest
rates through asset purchases. The public might lose confidence in the
central bank’s ability to reverse asset purchases, which could
v. un·moored, un·moor·ing, un·moors
1. To release from or as if from moorings.
2. Nautical To release (a ship) from all but one anchor.
inflation expectations (see, e.g., Anderson, Gascon, and Liu,
2010). An alternative is to purchase a carefully chosen portfolio of
interest rate derivatives that would lose value if short-term interest
rates increased faster than a time path announced by the central bank
(see, e.g., Krippner and Thornton, 2012). Such a portfolio would be
self-liquidating over time and profitable for the central bank if it
kept its promise.
(7) See the 12/16/2008, 3/18/2009, 8/09/2011, 1/25/2012, 9/13/2012,
and 12/12/2012 FOMC statements for the evolution of this language.
Tables A1 through A4 in the appendix provide URLs for the referenced
policy statements and announcements for the Federal Reserve, European
Central Bank, Bank of England, and Bank of Japan.
(8) “Gilt” is a common name for U.K. government debt
securities and alludes to the
tr.v. gild·ed or gilt , gild·ing, gilds
1. To cover with or as if with a thin layer of gold.
2. To give an often deceptively attractive or improved appearance to.
(golden) edge of the paper bonds.
(9) Baba, McCauley, and Ramaswamy (2009) detail these programs.
Anderson and Mullineux (2009) describe some of the crisis response
programs enacted by the BOE.
(10) MMMFs take funds from investors and use those funds to
purchase short-term fixed income securities such as U.S. Treasury bills,
short-term commercial paper, and certificates of deposit. The bankruptcy
of Lehman Brothers increased risk premia substantially, driving interest
rates higher and making markets
. To avoid losses, MMMF
investors began withdrawing their money from the funds.
(11) European OIS contracts are indexed to the Euro OverNight Index
Average (EONIA), or the average uncollateralized rate that banks lend to
each other overnight. Swap contracts are subject to very little
counterparty risk because participants swap only the difference in
interest payments between the agreed fixed rate and the geometric
average of the indexed floating rate; there is no exchange of principal.
In contrast, Euribor rates are quoted on fixed term loans between banks.
(12) See www.ecb.int/home/glossary/html/glossf.en.html for the full
definition of “fixed rate tender” and
“fixed-rate, full-allotment liquidity provision.”
(13) The ECB announced the first 6-month LTRO in March 2008; see
the 3/28/2008 ECB press release (Table A2).
(14) In contrast to the Fed, BOJ, and BOE, the ECB’s main
policy rate is a 2-week rate, not an overnight rate. As in the United
States, the overnight interbank rate in Europe has generally trended
below 50 basis points since May 2009.
(16) The Federal Reserve has referred to its purchase programs as
LSAPs, but the generic term QE is more common in the financial press.
(17) See the 11/25/2008 FOMC press release (Table A1). The
purchases did not increase the exposure of U.S. taxpayers to these
bonds, however, as the government had explicitly guaranteed all debts
and liabilities of the GSEs earlier that fall, making the GSE debt and
MBS close substitutes for long-term Treasury securities.
(18) JGBs are bonds with 2 to 40 years remaining until maturity
(19) See the 1/19/2009 HM Treasury statement (Table A3).
(20) A reverse auction purchases items from low bidders rather than
selling them to the highest bidder. HM Treasury indemnified the credit
risk assumed by the BOE in purchasing private assets.
(21) As the result of improved market conditions, the BOE ended the
Commercial Paper Facility on November 15, 2011 (as it had announced it
would one year earlier). The BOE continues to operate facilities for
purchasing corporate bonds and secured commercial paper
(22) HM Treasury recognized immediately that the APF could be used
in part as a monetary policy instrument:”[T]he programme also
provides a framework for the Monetary Policy Committee [
] of the Bank
of England to use asset purchases for monetary policy purposes should
the MPC conclude that this would be a useful additional tool for meeting
the inflation target.” See the 1/19/2009 HM Treasury Statement
(23) See the Asset Purchase Facility Quarterly Report 2009 Q2 for a
breakdown of assets held by method of financing
(24) Danielsson and de Vries (2008) assert that “extreme
information asymmetry “with respect to banks’ balance sheet
health, not simply lack of liquidity, plagued interbank markets. They
note that even a completely nationalized bank, Fortis in the
Netherlands, had very limited access to interbank markets and that
spreads between secured and unsecured lending indicated a market
expectation that 1 in 20 of the big banks would fail.
(25) The maximum maturity of LTROs was first expanded from 3 to 6
months on March 28, 2008.
(26) See the 5/7/2009 ECB press conference transcript (Table A2).
(27) Many governments had issued formal guarantee programs to
ensure demand for uncovered bonds.
(28) The BOJ had a
v. pre·ex·ist·ed, pre·ex·ist·ing, pre·ex·ists
To exist before (something); precede:
bond purchase program established in
(29) See the 6/15/2010 BOJ “Statement on Monetary Policy”
(30) Article 123.1 of the Consolidated Version of the Treaty on the
Functioning of the European Union prohibits the ECB from extending
credit to the governments of its member states or directly purchasing
sovereign debt in primary markets. See
www.ecb.int/ecb/legal/pdf/fxac08115enc_002.pdf for the full treaty.
(31) See the 5/10/2010 ECB press release (Table A2).
(32) See www.ecb.int/press/pr/wfs/2012/html/index.en.html.
(33) See the 5/10/2010 ECB press release (Table A2).
(34) See Minder (2011). Figure 2 in De Poorer, Martin, and Pruitt
(2012) shows heavy purchases of Italian and Spanish bonds in the second
half of 2012.
(35) In this context, a central bank might be accused of rationing
credit if it directs loans or bond purchases to specific industries or
types of economic activity, rather than supplying loans on the basis of
risk-adjusted price or purchasing riskless government bonds.
(36) See the 11/3/2010 FOMC statement (Table A1).
(37) On August 27, 2010, the date of Chairman Bernanke’s
speech, the 10-year constant maturity Treasury yield was 2.66 percent.
The day after the Reuters poll, October 6, 2010, the 10-year constant
maturity yield hit 2.41 percent, its lowest value since January 2009 and
ultimately its lowest value of the year. By November 3, 2010, the day of
the FOMC’s QE2 announcement, the yield had returned to 2.67 percent
and at the close of the year the yield had reached 3.30 percent.
(38) The purchase of ETFs and J-REITs was conditional upon
receiving approval pursuant to the Bank of Japan Act.
(39) See the 10/5/2010 BOJ press release (Table A4).
(40) Term premia are the excess yields that bond purchasers receive
to hold long-term bonds rather than a series of short-term bonds. Risk
premia are the excess yields on bonds that are perceived to have a
greater risk of default.
(41) This announcement had a significant effect on the MBS market.
For example, in the first half of 2012 the Fed purchased close to 40
percent of the MBS issued by Fannie Mae and Freddy Mac and backed by
30-year conventional mortgages (Chandra and Strand, 2012).
(42) The BOJ simultaneously reduced the availability of FRO loans
by [yen] 10 trillion.
(43) See the 9/19/2012 BOJ press release (Table A4).
(44) See Bernanke (2012).
(45) At the July 31-August 1 FOMC meeting, “many members
judged that additional monetary accommodation would likely be warranted
fairly soon unless incoming information pointed to a substantial and
sustainable strengthening in the pace of the economic recovery”;
(46) See the 9/13/2012 FOMC statement (Table A1).
(47) See the introductory statement to the ECB’s press
(48) Existing securities purchased under the SMP will be held to
(49) Through OMTs, the ECB will buy the debt of only those
countries that have accepted aid from the European
) and abided by its conditions. The ESM is a
self-insurance fund capitalized by the euro area sovereigns and
authorized to buy member sovereign debt on the primary market,
conditional on the country’s acceptance of a structural reform
(50) Based on current lending statistics, the BOJ expects to extend
at least [yen] 50 trillion in loans through the SBLF. On December 16,
2012, Japan elected Shinzo Abe as its next prime minister. Abe
campaigned on a platform of monetary policy accommodation to counteract
deflationary conditions and advocates a 2 percent inflation target for
the BOJ rather than the current 1 percent target. The new political
regime has caused many to speculate that the BOJ’s independence is
at risk (e.g., Kihara, 2012).
(51) Of course, the assets and liabilities of the
government/central bank are ultimately assets and liabilities of
taxpayers. But when central banks purchase private risk, the risk no
longer affects marginal decisions of private agents.
(52) See 8/10/2010 and 9/21/2011 FOMC statements (Table A1).
(53) In a letter to
, governor of the BOE, on November
29, 2011, George Osborne,
chancellor of the Exchequer
The senior finance minister in the British government and a member of the prime minister’s cabinet.
, lowered the
ceiling on private asset purchases from 50 billion [pounds sterling] to
10 billion [pounds sterling] (Table A3). In total, HM Treasury
indemnifies up to 385 billion [pounds sterling] in purchases through the
APF, but no more than 10 billion [pounds sterling] in private assets and
375 billion [pounds sterling] in purchases funded by reserve issuance.
(54) Note that on June 26, 2006, the BOJ introduced new electronic
operations called “funds-supplying operations against pooled
collateral” to replace conventional paper-based bill purchasing
(55) The BOJ expanded monthly JGB purchases first from [yen] 1.2
trillion per month to [yen] 1.4 trillion per month in December 2008 and
then from [yen] 1.4 trillion per month to [yen] 1.8 trillion per month
in March 2009; the [yen] 34.8 trillion total equals 3 months x [yen] 0.2
trillion per month + 57 months x [yen] 0.6 trillion per month. We
measure the cumulative size of BOJ asset purchases in this
any of the smaller parts into which a section may be divided
Noun 1. subsection – a section of a section; a part of a part; i.e.
exclusively from purchases that have been made and are yet to be made
but have a clearly defined (i.e.,
) size; we do not include
anticipated monthly JGB purchases, which are set to continue
Not definite, especially:
a. Unclear; vague.
b. Lacking precise limits:
at a pace of [yen] 21.6 trillion per year.
(56) See the 12/20/2012 BOJ release on the “Enhancement of
Monetary Easing” (Table A4).
(57) See the 12/20/2012 BOJ release for information about the pace
of purchases (Table A4).
(58) See Figures 1 and 2 in De Pooter, Martin, and Pruitt (2012).
Brett W. Fawley is a senior research associate and Christopher J.
Neely is an assistant vice president and economist at the Federal
Reserve Bank of St. Louis.
Table 1A Important Announcements by the Federal Reserve Date Program Event 11/25/2008 QE1 FOMC statement 12/1/2008 QE1 Bernanke speech 12/16/2008 QE1 FOMC statement 1/28/2009 QE1 FOMC statement 3/18/2009 QE1 FOMC statement 8/12/2009 QE1 FOMC statement 9/23/2009 QE1 FOMC statement 11/4/2009 QE1 FOMC statement 8/10/2010 QE1 FOMC statement 8/27/2010 QE2 Bernanke speech 9/21/2010 QE2 FOMC statement 10/12/2010 QE2 FOMC minutes released 10/15/2010 QE2 Bernanke speech 11/3/2010 QE2 FOMC statement 6/22/2011 QE2 FOMC statement 9/21/2011 Maturity FOMC Extension statement Program 6/20/2012 Maturity FOMC Extension statement Program 8/22/2012 QE3 FOMC minutes released 9/13/2012 QE3 FOMC statement 12/12/2012 QE3 FOMC statement Date Brief Interest description rate news 11/25/2008 LSAPs announced: Fed will purchase $100 billion in GSE debt and $500 billion in MBS. 12/1/2008 First suggestion of extending QE to Treasuries. 12/16/2008 First The Fed cuts suggestion of the federal extending QE to funds rate from Treasuries by 1 % to 0.00- 1/28/2009 FOMC. Fed 0.25%; expects stands ready to low rates "for expand QE and some time." buy Treasuries. 3/18/2009 LSAPs expanded: Fed expects low Fed will rates for "an purchase $300 extended billion in period." long-term Treasuries and an additional $750 and $100 billion in MBS and GSE debt, respectively. 8/12/2009 LSAPs slowed: All purchases will finish by the end of October, not mid-September. 9/23/2009 LSAPs slowed: Agency debt and MBS purchases will finish at the end of 2010:Q1. 11/4/2009 LSAPs downsized: Agency debt purchases will finish at $175 billion. 8/10/2010 Balance sheet maintained: The Fed will reinvest principal payments from LSAPs in Treasuries. 8/27/2010 Bernanke suggests role for additional QE "should further action prove necessary.' 9/21/2010 FOMC emphasizes low inflation, which "is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate:' 10/12/2010 FOMC members-sense" is that "[additional] accommodation may be appropriate before long." 10/15/2010 Bernanke reiterates that Fed stands ready to further ease policy. 11/3/2010 QE2 announced: Fed will purchase $600 billion in Treasuries. 6/22/2011 QE2 finishes: Treasury purchases will wrap up at the end of month, as scheduled; principal payments will continue to be reinvested. 9/21/2011 Maturity Extension Program ("Operation Twist") announced: The Fed will purchase $400 billion of Treasuries with remaining maturities of 6 to 30 years and sell an equal amount with remaining maturities of 3 years or less; MBS and agency debt principal payments will no longer be reinvested in Treasuries, but instead in MBS. 6/20/2012 Maturity Extension Program extended: The Fed will continue to purchase long-term securities and sell short-term securities through the end of 2012. Purchases/sales will continue at the current pace, about $45 billion/month. 8/22/2012 FOMC members "judged that additional monetary accommodation would likely be warranted fairly soon..." 9/13/2012 QE3 announced: Fed expects low The Fed will rates "at least purchase $40 through mid- billion of MBS 2015." per month as long as "the outlook for the labor market does not improve substantially ... in the context of price stability.' 12/12/2012 QE3 expanded: The Fed expects The Fed will low rates to be continue to appropriate purchase $45 while billion of unemployment long-term is above 6.5 Treasuries per percent and month but will inflation is no longer forecasted sterilize below 2.5 purchases percent. through the sale of short-term Treasuries. NOTE: The appendix provides URLs for the official policy statements included in Tables 1 A-1 D and those discussed in the text. Table 1B Important Announcements by the European Central Bank Date Program Event Brief Interest description rate news 3/28/2008 LTRO Governing LTRO expanded: Council 6-month LTROs press are announced. release 10/15/2008 FRFA Governing Refinancing Council operations press expanded: All release refinancing operations will be conducted with fixed-rate tenders and full allotment; the list of assets eligible as collateral in credit operations with the Bank is expanded to included lower rated (with the exception of asset-backed securities) and non-euro- denominated assets. 5/7/2009 CBPP/ Governing CBPP ECB lowers the LTRO Council announced-LTRO main press expanded: The refinancing release ECB will rate by 0.25% purchase 60 to 1% and the billion [pounds rate on the sterling] in marginal euro- lending denominated facility by covered bonds; 0.50% to 1.75%. 12-month LTROs are announced. 5/10/2010 SMP Governing SMP announced: Council The ECB will press conduct release interventions in the euro area public and private debt securities markets; purchases will be sterilized. 6/30/2010 CBPP Governing CBPP finished: Council Purchases press finish on release schedule; bonds purchased will be held through maturity. 10/6/2011 CBPP2 Governing CBPP2 Council announced: The press ECB will release purchase 40 billion [pounds sterling] in euro- denominated covered bonds. 12/8/2011 LTRO Governing LTRO expanded: ECB lowers the Council 36-month LTROs main press are announced; refinancing release eligible rate by 0.25% collateral is to 1 %, and the expanded. rate on the marginal lending facility by 0.25% to 1.75%. 8/2/2012 OMT ECB press ECB President conference Mario Draghi indicates that the ECB will expand sovereign debt purchases. He proclaims that "the euro is irreversible." 9/6/2012 OMT Governing OMTs announced: Council Countries that press apply to the release European Stabilization Mechanism (ESM) for aid and abide by the ESM's terms and conditions will be eligible to have their debt purchased in unlimited amounts on the secondary market by the ECB. Table 1C Important Announcements by the Bank of England Date Program Event Brief Interest description rate news 1/19/2009 APF HM Treasury APF statement established: The BOE will purchase up to 50 billion [pounds sterling] of "high quality private sector assets" financed by Treasury issuance. 2/11/2009 APF BOE Inflation The BOE views a Report slight downside released risk to meeting the inflation target, reiterates APF as a potential policy instrument. 3/5/2009 APF MPC statement QE announced: The BOE cuts The BOE will policy rate purchase up to from 1% to 75 billion 0.5%; the ECB [pounds cuts policy sterling] in rate from 2% assets, now to 1.5%. financed by reserve issuance; medium-and long-term gilts will comprise the "majority" of new purchases. 5/7/2009 APF MPC statement QE expanded: The BOE will purchase up to E125 billion in assets. 8/6/2009 APF MPC statement QE expanded: The BOE will purchase up to 175 billion [pounds sterling] in assets; to accommodate the increased size, the BOE will expand purchases into gilts with remaining maturity of 3 years or more. 11/5/2009 APF MPC statement QE expanded: The BOE will purchase up to 200 billion [pounds sterling] in assets. 2/4/2010 APF MPC statement QE maintained: The BOE maintains the stock of asset purchases financed by the issuance of reserves at 200 billion [pounds sterling]; new purchases of private assets will be financed by Treasury issuance. 10/6/2011 APF MPC statement QE expanded: The BOE will purchase up to 275 billion [pounds sterling] in assets financed by reserve issuance; the ceiling on private assets held remains 50 billion [pounds sterling]. 11/29/2011 APF HM Treasury Maximum private decision asset purchases reduced: HM Treasury lowers the ceiling on APF private asset holdings from 50 billion [pounds sterling] to 10 billion [pounds sterling]. 2/9/2012 APF MPC statement QE expanded: The BOE will purchase up to 325 [pounds sterling] billion in assets. 7/5/2012 APF MPC statement QE expanded: The BOE will purchase up to 375 billion [pounds sterling] in assets. NOTE: MPC, Monetary Policy Committee. Table 1D Important Announcements by the Bank of Japan Date Program Event 12/2/2008 SFSOs Unscheduled monetary policy meeting 12/19/2008 Outright Statement on JGB/CFI monetary policy purchases 1/22/2009 Outright CFI Statement on purchases monetary policy 2/19/2009 Outright CFI Statement on purchases monetary policy 3/18/2009 Outright JGB Statement on purchases monetary policy 7/15/2009 Outright CFI Statement on purchases/SFSOs monetary policy 10/30/2009 Outright CFI Statement on purchases/SFSOs monetary policy 12/1/2009 FROs Statement on monetary policy 3/17/2010 FROs Statement on monetary policy 5/21/2010 GSFF Statement on monetary policy 8/30/2010 FROs Unscheduled monetary policy meeting 10/5/2010 CME Statement on monetary policy Date Program Event 3/14/2011 CME Statement on monetary policy 6/14/2011 GSFF Statement on monetary policy 8/4/2011 CME Statement on monetary policy 10/27/2011 CME Statement on monetary policy 2/14/2012 CME Statement on monetary policy 3/13/2012 GSFF Statement on monetary policy 4/27/2012 CME Statement on monetary policy 7/12/2012 CME Statement on monetary policy 9/19/2012 CME Statement on monetary policy 10/30/2012 CME/SBLF Statement on monetary policy 12/20/2012 CME Statement on monetary policy Date Brief Interest rate description news 12/2/2008 The BOJ will operate a facility through the end of April to lend an unlimited amount to banks at the uncollateralized overnight call rate and collateralized by corporate debt. 12/19/2008 Outright The BOJ lowers purchases the target for expanded: The the BOJ increases uncollateralized monthly JGB overnight call purchases (last rate from 0.3% increased to 0.1%. October 2002) from 1.2 trillion [yen] to 1.4 trillion [yen]; they will also look into purchasing commercial paper. 1/22/2009 Outright purchases announced: The BOJ will purchase up to 3 trillion [yen] in commercial paper and ABCP and is investigating outright purchases of corporate bonds. 2/19/2009 Outright purchases expanded: The BOJ will extend commercial paper purchases and the SFSOs through the end of September (previously end of March) and will purchase up to 1 trillion [yen] in corporate bonds. 3/18/2009 Outright purchases expanded: The BOJ increases monthly JGB purchases from 1.4 trillion [yen] to 1.8 trillion [yen]. 7/15/2009 Programs extended: The BOJ extends the SFSOs and outright purchases of corporate paper and bonds through the end of the year. 10/30/2009 Status of programs: Outright purchases of corporate finance instruments will expire at the end of 2009 as expected, but the SFSOs will be extended through 2010: Q1 ample liquidity provision past 2010: Q1 will occur through funds supplying operations against pooled collateral, which will accept a larger range of collateral. 12/1/2009 Facility announcement: The BOJ will offer 10 trillion [yen] in 3-month loans against the full menu of eligible collateral at the uncollateralized overnight call rate. 3/17/2010 Facility expansion: The BOJ expands the size of the FROs to 20 trillion [yen]. 5/21/2010 GSFF announcement: The BOJ will offer 3 trillion [yen] in 1-year loans to private financial institutions with project proposals for "strengthening the foundations for economic growth." 8/30/2010 Facility expansion: The BOJ adds 10 trillion [yen] in 6-month loans to the FROS. 10/5/2010 APP The BOJ sets established: the target for The BOJ will the purchase 5 uncollateralized trillion [yen] overnight call in assets (3.5 rate at around trillion [yen] 0 to 0.1 %. in JGBs and Treasury discount bills, 1 trillion [yen] in commercial paper and corporate bonds, and 0.5 trillion [yen] in ETFs and J-REITs). Date Brief Interest rate description news 3/14/2011 APP expanded: The BOJ will purchase an additional 5 trillion [yen] in assets (0.5 trillion [yen] in JGBs, 1 trillion [yen] in Treasury discount bills, 1.5 trillion [yen] in commercial paper, 1.5 trillion [yen] in corporate bonds, 0.45 trillion [yen] in ETFs, and 0.05 trillion [yen] in J-REITs). 6/14/2011 GSFF expanded: The BOJ makes available another 0.5 trillion [yen] in loans to private financial institutions for the purpose of investing in equity and extending asset-based loans. 8/4/2011 APP-FROs expanded: The BOJ will purchase an additional 5 trillion [yen] in assets (2 trillion [yen] in JGBs, 1.5 trillion [yen] in Treasury discount bills, 0.1 trillion [yen] in commercial paper, 0.9 trillion [yen] in corporate bonds, 0.5 trillion [yen] in ETFs, and 0.01 trillion [yen] in J- REITs); 6- month collateralized loans through the FROs are expanded by 5 trillion [yen]. 10/27/2011 APP expanded: The BOJ will purchase an additional 5 trillion [yen] in JGBs. 2/14/2012 APP expanded: The BOJ will purchase an additional 10 trillion [yen] in JGBs. 3/13/2012 GSFF expanded: The BOJ makes available another 2 trillion [yen] in loans to private financial institutions, including Y1 trillion in U.S.-dollar- denominated loans and 0.5 trillion [yen] in smaller-sized (1 million [yen]-10 million [yen]) loans. 4/27/2012 APP expanded/FROs reduced: The BOJ will purchase an additional 10 trillion [yen] in JGBs, 0.2 trillion [yen] in ETFs, and 0.01 [yen] in J-REITs. The BoJ also reduces the availability of 6-month FRO loans by 5 trillion [yen]. 7/12/2012 APP expanded/FROs reduced: The BOJ will purchase an additional Y5 trillion in Treasury discount bills and reduces the availability of FRO loans by Y5 trillion. 9/19/2012 APP expanded: The BOJ will purchase an additional 5 trillion [yen] in JGBs and 5 trillion [yen] in Treasury discount bills. 10/30/2012 APP expanded/SBLF announced: The BOJ will purchase an additional 5 trillion [yen] in JGBs, [yen] 5 trillion in Treasury discount bills, 0.1 trillion [yen] in commercial paper, 0.3 trillion [yen] in corporate bonds, 0.5 trillion [yen] in ETFs, and 0.01 trillion [yen] in J-REITs. Through the SBLF it will fund up to 100 percent of depository institutions' net increase in lending to the nonfinancial sector. 12/20/2012 APP expanded: The BOJ will purchase an additional 5 trillion [yen] JGBs and 5 trillion [yen] in Treasury discount bills. NOTE: CFI, corporate finance instruments (corporate bonds plus commercial paper); CME, comprehensive monetary easing. Table 2 Asset Purchase Program Size Central Assets Peak size bank Program purchased (billion NC) Fed QE1 GSE agency debt $175 MBS $1,250 Treasuries $300 QE2 Treasuries $600 QE3 Treasuries $667 QE4 QE5 QE6 MBS $160 Treasuries $0 * BOE APF Gilts 375 [pounds sterling] Commercial paper 1.97 [pounds sterling] Corporate bonds 1.6 [pounds sterling] ECB CBPP Covered bonds 60 [euro] SMP Euro area 220 [euro] sovereign debt CBPP2 Covered bonds 40 [euro] BOJ Outright JGBs 106,800 [yen] purchases Commercial paper 3,000 [yen] Corporate bonds 1,000 [yen] APP JGBs 44,000 [yen] Treasury 24,500 [yen] discount bills Commercial paper 2,200 [yen] Corporate bonds 3,200 [yen] ETFs 2,100 [yen] J-REITs 130 [yen] Fed total $3,152 BOE total 379 [pounds sterling] ECB total 320 [euro] BOJ total 186,930 [yen] Peak size 2008 GDP Share of Central (billion (billion economy bank USD) NC) (%) Fed $14,292 1.2 8.7 2.1 4.2 4.7 1.1 0.0 BOE $590 1,441 26.0 [pounds sterling] $3.10 0.1 $2.52 0.1 ECB $81 9,219 0.7 [euro] $297 2.4 $54 0.4 BOJ $1,253 501,209 21.3 [yen] $35 0.6 $12 0.2 $516 8.8 $287 4.9 $26 0.4 $38 0.6 $25 0.4 $2 0.0 Fed total $3,152 22.1 BOE total $596 26.3 ECB total $432 3.5 BOJ total $2,193 37.3 NOTE: NC, national currency. Values in local currencies are converted to dollars using the average exchange rate with the dollar from January 2009 through November 2012. The Fed's monthly QE3 purchases and the BOJ's monthly outright JGB purchases, which are both open ended, are aggregated through December 2012. * QE3 Treasury purchases were not announced until December 12, 2012, but will be made in 2013 at a pace of $45 billion per month.