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How quantitative easing works

When the financial sector is constrained and monetary stimulus is needed the most, flattening the yield curve is not enough – quantitative easing affects the real economy through a direct-lending channel that depends crucially on the type of assets purchased. This column argues that the Fed’s decision to purchase mortgage-backed securities (rather than exclusively Treasuries) during its first phase of quantitative easing increased mortgage-refinancing activity by $600 billion and had significant effects on aggregate consumption.
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