The recent quantitative easing programs which are being offered by the Federal Reserve are currently under analysis by economists who have been studying the Federal Reserve System in an attempt to figure out whether or not the monetary policy followed by a central bank could still maintain its level of potency when the short – term rates reach zero value. These economists are doing so in an attempt to test out a theory which states that ceilings for yields on securities which have a longer term, like those backed by agency – mortgages, agency debts or even treasury securities can be actively enforced by banking institutions purchasing a large number and variety of assets apart from short – term securities.
According to them, should a long – term program of purchasing assets turn out to have a high rate of success, it could lead to a great reduction in the yields obtained from these securities as well as forms of private debt, like mortgages. This, according to these economists could also have a significant impact on spending, since there would also be a consequent expansion of the monetary base which would result in an increase in the prices of assets. These purchases are also seen as having a great impact on the MBS yields via channels involved in rebalancing portfolios. These economists are still working on how to assess the effects delivered by the open market operations of the Federal Reserve given the large number of transmission channels through which monetary policy accommodation functions.