Does the Way of Financing Quantitative Easing Programmes Matter

Abstract

This paper applies a DSGE model to find whether the way of financing
QE2 matters for the reaction of the economy. The model includes a segmented
bond market structure, thus the large-scale asset purchases may successfully
influence the economy. It is shown that the effects on macroeconomic variables
are very similar regardless of whether the government finances the purchases
by lump-sum taxes or by short-term debt which signifies that the quantitative
deviation from Ricardian equivalence introduced by bond market segmentation
is insignificant. The redistribution effects caused by financing are noticeable.