PHILADELPHIA: Extensive research into massive asset-purchase programs has not yet clarified whether such policies ease financial conditions primarily as a signal to investors or more directly through private portfolios, an influential US central banker said on Saturday.
The Federal Reserve is currently buying $75 billion a month in Treasuries and mortgage bonds in its third round of quantitative easing, or QE3, which is meant to ease longer-term borrowing costs in the economy.
Yet "we still don't have well-developed macro-models that incorporate a realistic financial sector,'William Dudley, president of the New York Fed, told an economics conference.
"We don't understand fully how large-scale asset purchase programs work to ease financial market conditions, there's still a lot of debate" he said.
"Is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling?"
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