Janet Yellen on Unconventional Monetary Policy
JY:
FRB: Speech: February 25, 2011: To assess the macroeconomic effects of the Fed's large-scale asset purchase program, I would like to highlight some findings from a recent study by four Federal Reserve System economists.... The baseline incorporates the first round of asset purchases--which brought the Federal Reserve's securities holdings to a little more than $2 trillion. It embeds an assumption that the FOMC will complete the purchases announced last November so that the balance sheet expands to about $2.6 trillion by the middle of this year. From that point forward, the authors assume that the overall size of the portfolio will remain unchanged until mid-2012 and then shrink gradually at a rate sufficient to return it to its pre-crisis trend line by mid-2016.... [T]he overall characteristics of this assumed trajectory seem broadly consistent with the sense of the Committee's discussions last spring.... [T]he counterfactual scenario in which the FOMC never conducts any asset purchases.... The pace of recovery under the baseline scenario is expected to be painfully slow. But the counterfactual scenario suggests that conditions would have been even worse in the absence of the Federal Reserve's securities purchases: The unemployment rate would have remained persistently above 10 percent, and core inflation would have fallen below zero this year. Of course, considerable uncertainty surrounds those estimates, but they nonetheless suggest that the benefits of the asset purchase programs probably have been sizeable...
