Question

the effectiveness and limitations of long term asset purchases by major central banks after 2008

Answer 1

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Abstract

Long-term assets are assets or other investments made by a bank that benefited the federal reserve for several years. But it has created some negative consequence such as increases in security holding, lowering long term income curve etc.

Long-term assets known as non-current assets, long-term assets can include fixed assets such as a company's property, plant, and equipment, but can also include other assets such as long-term investments or patents.

Following the recent global financial crisis 2008 and the onset of the ensuing recession - Central bank buys government bonds and other financial assets in order to inject money into the economy to expand economic activity.

We can summarize the effectiveness and limitation in following ways :

1) Several central banks also implemented policy measures considered non-standard, including outright purchases of large amounts of long-term bonds.

2) This led to dramatic increases in the securities holdings of the Federal Reserve and the Bank of England.

3) The central bank expanded the existing asset purchase program or adopting new measures, such as the Federal Reserve’s maturity extension program (MEP) in September 2011.

4) Purchases of longe term securities lowered the long term end of the yield curve and lead investors to buy assets with greater duration or higher credit risk.

5) After purchasing assets there was sudden increases in prices for a range of private assets, including home and equity prices.

6) Purchases of long term securities lowered the expected future path of short-term rates and reduce longer-term yields

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