rates were close to zero, and friedman argued for large - scale purchases of long - term bonds by the bank of japan to help overcome japan ’ s deflationary trap. 5 large - scale asset purchases can influence financial conditions and the broader economy through other channels as well. for instance, they can signal that the central bank intends to pursue a persistently more accommodative policy stance than previously thought, thereby lowering investors ’ expectations for the future path of the federal funds rate and putting additional downward pressure on long - term interest rates, particularly in real terms. such signaling can also increase household and business confidence by helping to diminish concerns about “ tail ” risks such as deflation. during stressful periods, asset purchases may also improve the functioning of financial markets, thereby easing credit conditions in some sectors. with the space for further cuts in the target for the federal funds rate increasingly limited, in late 2008 the federal reserve initiated a series of large - scale asset purchases ( lsaps ). in november, the fomc announced a program to purchase a total of $ 600 billion in agency mbs and agency debt. 6 in march 2009, the fomc expanded this purchase program substantially, announcing that it would purchase up to $ 1. 25 trillion of agency mbs, up to $ 200 billion of agency debt, and up to $ 300 billion of longer - term treasury debt. 7 these purchases were completed, with minor adjustments, in early 2010. 8 in november 2010, the fomc announced that it would further expand the federal reserve ’ s security holdings by purchasing an additional $ 600 billion of longer - term treasury securities over a period ending in mid - 2011. 9 about a year ago, the fomc introduced a variation on its earlier purchase programs, known as the maturity extension program ( mep ), under which the federal reserve would purchase $ 400 billion of long - term treasury securities and sell an equivalent amount of shorter - term treasury securities over the period ending in june 2012. 10 the fomc subsequently extended the mep through the end of this year. 11 by reducing the average maturity of the securities held by the public, the mep puts additional downward pressure on longer - term interest rates and further eases overall financial conditions. how effective are balance sheet policies? after nearly four years of experience with large - scale asset purchases, a substantial body of empirical work on their effects has emerged. generally, this research finds that the federal reserve ’ s

large - scale purchases have significantly lowered long - term treasury yields. for example, studies have found that the $ 1. 7 trillion in purchases of treasury and agency securities under the first lsap program reduced the yield on 10 - year treasury securities by between 40 and 110 basis points. the $ 600 billion in treasury purchases under the second lsap program has been credited with lowering 10 - year yields by an additional 15 to 45 basis points. 12 three studies considering see tobin ( 1965 ) and friedman ( 2000 ). see board of governors ( 2008 ). see board of governors ( 2009 ). several months later, to avoid an implicit tightening in policy associated with the runoff of maturing securities, the federal reserve also began reinvesting the principal payments received on agency mbs and debt into treasury securities and continued to roll over maturing longer - term treasury debt. see board of governors ( 2010a ). see board of governors ( 2010b ). at the same time, the committee announced that it would reinvest principal payments from agency debt and agency mbs into agency mbs. see board of governors ( 2011a ). see board of governors ( 2012a ). studies of the effects of securities purchases include, among others, d ’ amico and king ( forthcoming ), gagnon and others ( 2011 ), hamilton and wu ( 2012 ), krishnamurthy and vissing - jørgensen ( 2011 ), meaning and zhu ( 2011 ), swanson ( 2011 ), d ’ amico and others ( forthcoming ), and wright ( 2012 ). bis central bankers ’ speeches the cumulative influence of all the federal reserve ’ s asset purchases, including those made under the mep, found total effects between 80 and 120 basis points on the 10 - year treasury yield. 13 these effects are economically meaningful. importantly, the effects of lsaps do not appear to be confined to longer - term treasury yields. notably, lsaps have been found to be associated with significant declines in the yields on both corporate bonds and mbs. 14 the first purchase program, in particular, has been linked to substantial reductions in mbs yields and retail mortgage rates. lsaps also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook ; it is probably not a coincidence that the sustained recovery in u. s. equity prices began in march 2009, shortly after the fomc ’ s decision to greatly expand securities purchases.