The Research On The Fed’s Unconventional Monetary Policy And Its Effects

After the outbreak of subprime crisis in September2007, the Fed cut down the federal fund rate for10times in a row, and finally, it low it to0-0.25%on December16,2008, from now on, the United States enter into "zero interest era". Although the normal short-term interest rates very low, long-term real interest rates are still high, U.S10-year interest rate for Baa grade bond climb to the top level of9.43%, and credit risk of financial institutions continued to go rise because of their severely damaged asset in crisis, the TED spreads became widened. High long-term real interest rate and unstable financial market cast a thick shadow over the recovery of U.S economy, so when zero border imposed restriction on short-term normal rates, the Fed resort to unconventional monetary policy for the aim of reducing the long-term real rates and rescue the damaged financial institutions.On the basis of theoretical and empirical research on unconventional monetary policy by domestic and overseas scholars, combined with the practice of U.S unconventional monetary policy, the paper firstly make a new definition on it, and divide it into three groups:zero interest commitment, quantitative easing and credit easing policy. In theory, when facing liquidity trap and deflation expectations, the conventional monetary policy whose core is short-term normal interest sink into trap, on this occasion, the unconventional monetary policy come into play through central bank’s commitment effect, signal effect and rebalance of asset portfolios effect, which substitute for the short-term normal rates. Through comparative analysis of the Fed’s Balance Sheet’s changes before and after the implementation of unconventional monetary policy, the paper finds out the characteristics of unconventional monetary policy. Among them, the quantitative easing policy make the size of Fed’s Balance Sheet increase rapidly, the increase of base money supplied a lot of liquidity for banking system; the credit easing policy change the structure and content of Fed’s Balance Sheet, the form of Fed’s main asset changed from short-term low-risk assets to long-term high-risk asset, and some new special items in Fed’s Balance Sheet were set to offer many financing facilities to banks, non-bank financial institutions and government guaranteed enterprises. Due to the goal of Fed’s unconventional monetary policy is to reduce the long-term real rates and credit risk in financial market, to test whether it is effective, the paper construct VAR model with four variables of quantitative easing, credit easing, long-term real rate and TED spreads, and use the Fed’s Weekly data across the time in which Fed implement the unconventional monetary policy from middle December,2008to late june,2011, the result of impulse response function and variance decomposition give us some conclusion:in terms of reducing long-term real rate, quantitative easing and credit easing are both effect, among which, the former is for long-term effect, but the latter is for short-term effect; however, they both take little effect in reducing credit risk in financial market. This also suggests that Fed can use monetary policy to invent the long-term real rates but credit risk, credit risk is in relation to whether the U.S economy recover and market confidence return. Quantitative easing policy has time lag, which influences the long-term real rates indirectly basically through inflation expectation, but credit easing policy has shorter time lag, when Fed purchases long-term asset in the open market, at the same time, the long-time rate may change directly.