On the transactions costs of quantitative easing

Most quantitative easing programmes primarily involve central banks acquiring government liabilities in return for central bank reserves. In all cases this process is undertaken by purchasing these liabilities in the secondary market rather than directly from the government. Yet the only practical difference between secondary market purchases and bilateral central bank/Treasury operations is the transactions costs involved in market operations. This paper quantifies the significant cost of this round-trip transaction - government issuance of liabilities and then central bank purchase of those liabilities in the secondary market.

JEL classification: D44, E42, E52, E58, G12

Keywords: Quantitative Easing, auctions, bond interest rates, central bank balance sheets, exit strategy