Date Approved

2011

Degree Type

Open Access Senior Honors Thesis

Department

Economics

First Advisor

David B. Crary

Abstract

In December 2008, with the target Fed Funds rate at a zero lower bound, the Federal Reserve had to use an unprecedented monetary policy tool known as quantitative easing to help stimulate the economy and achieve economic goals. This paper will explain what quantitative easing is, why it became necessary and how it has been implemented. In t his paper, we will discuss prior literature from Federal Reserve staff economists on the fluctuation of long-term interest rated in response to these quantitative easing policies. The paper will conclude with a ordinary least squares regression analysis using United States economic data to try and explain the marginal effect of quantitative easing on various long-term rates. Our model indicates that to this point, quantitative easing was successful in lowering mortgage rates, but its impact on Treasury rates is statistically insignificant.

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