Key aspects of longer-term asset purchase programs in UK and US monetary policy

Abstract

This paper considers several key aspects of recent central bank purchase programs involving longer-term government securities in the United States (where the programs are termed ‘large-scale asset purchases’) and the United Kingdom (where the programs are labeled ‘asset purchases financed by the issuance of central bank reserves’, or ‘quantitative easing’). Aspects of the purchase programs discussed include the scale of the programs, the historical and institutional background behind the programs, their effects on long-term interest rates and the equivalent effect expressed in terms of policy rates, and the reaction of aggregate demand to the programs. An analysis of the early stages of the economic recovery suggests that, by bolstering nominal spending and purchasing power, the asset purchases helped to secure positive real growth in the United Kingdom in 2010 in the face of adverse price-level shocks.