Question

How did maturity extensions help the 2008 recession?

Answer 1

On 21 September 2011, the Maturity Extension Program was announced. The program originally included the acquisition of $400 billion of 6- to 30-year Treasuries, followed by the selling of the same amount of 1- to 3-year securities, with the goal of "pressuring down longer-term interest rates and helping to make broader financial conditions more accommodative." The Fed announced an extension of the program June 20, 2012, which eventually amounted to $667 billion. Unlike the three large-scale acquisitions of assets, all of which included balance sheet changes, this plan "sterilized" acquisitions of assets by offsetting asset sales, leaving the overall size of the balance unchanged

The Fed's monetary policy approach has continued to develop in an effort to boost the economy and meet its legislative mandate, with the federal funds rate at the zero bound and the ongoing recovery sluggish and grudging. Following the end of the Great Recession, the Fed has continued to make improvements to its communication practices and to introduce new LSAP programs: a $600 billion Treasury-only purchasing program in 2010-11 and a result-based purchasing plan that started in September 2012 (in addition, a maturity extension plan was initiated in 2011-12 in which the Fed sold short-term Treasury securities.

In addition , the growing emphasis on financial stability and regulatory reform, the economic side effects of the European sovereign debt crisis and the restricted opportunities for global growth in 2013 and 2014 speak to how today's aftermath of the Great Recession continues to be felt.