Authors: Darrell Duffie and Frank M. Keane
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Staff Reports
Market-Function Asset Purchases
Number 1054
February 2023
February 2023
JEL classification: D53, E52, E58, E44, E61
This paper investigates the goals, costs, and benefits of official-sector purchases of government securities for the purpose of restoring market functionality. We explore the design of market-function purchase programs, including their communication, triggers, operational protocols, exit, and wind-down strategies. We further discuss whether, under some circumstances, fiscal buybacks might be a useful alternative or complement to central-bank market-function purchase programs, and how these buybacks could be funded. The use of fiscal buybacks to support market functionality can be aligned with the fiscal authority’s goal of minimizing the government’s interest expense and can reduce challenges that can be faced by a central bank when asset purchases are not naturally congruent with monetary policy. Depending on the setting and circumstances, fiscal buybacks can also mitigate perceptions of risks to the central bank’s independence.
Author Disclosure Statement(s)
Darrell Duffie
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Frank Keane
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html. The views expressed in this note do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Frank Keane
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html. The views expressed in this note do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.
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