Paul Krugman is warming up to the idea of a safe-asset shortage or at a minimum that the QE might have next to no direct positive effects on the real economy: What the Fed has been doing recently, however, is something else: buying long-term Treasuries. This looks like this: Fed purchases of Treasuries This should indirectly reduce the interest rate on MBS, but maybe not by much. If MBS and Treasuries are poor substitutes, the MBS curve may be very steep; and if Treasuries and short-term assets ...
Paul Krugman is warming up to the idea of a safe-asset shortage or at a minimum that the QE might have next to no direct positive effects on the real economy: What the Fed has been doing recently, however, is something else: buying long-term Treasuries. This looks like this: Fed purchases of Treasuries This should indirectly reduce the interest rate on MBS, but maybe not by much. If MBS and Treasuries are poor substitutes, the MBS curve may be very steep; and if Treasuries and short-term assets ...
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