Do Large-Scale Asset Purchases impact inflation expectations?

Yes they do. The impact is not much but still it has some powers to raise inflation expectations.

Massimo Guidolin and Christopher J. Neely of St Louis Fed in this note say:

One proposal to avoid the adverse consequences of deflation suggests that a large monetary stimulus to create “healthy” (positive) inflation expectations may reduce real interest rates and thus promote growth. In particular, analysts have suggested the Federal Open Market Committee (FOMC) should reprise its large-scale asset purchases (LSAPs) of Treasuries and mortgage-backed securities. Their rationale is that LSAPs have successfully reduced the nominal yields on medium- and long-term Treasuries by 50 to 70 annualized basis points. These lower yields directly lower the cost of government borrowing and stimulate investment and consumption by households and firms. LSAPs could also reduce real rates by increasing inflation expectations.

Have the announcements of past asset purchases raised inflation expectations?

They do an event study to understand the impact. So whenever large-scale asset purchases have been announced by Fed, they see whether inflation expectations have moved. They use TIPS-implied inflation expectations and find:

The figure and the table shows that inflation expectations appear to react modestly to LSAP announcements, between 7 and 18 basis points per annum.

So it is limited but there is some impact. So, LSAP do no just help lower interest rates but help raise inflation expectations as well.


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