The financial market effects of unwinding the Federal Reserve’s balance sheet

Twice in a brief 12-year period between 2008 and 2020, central banks turned to asset purchase programs combat global economic downturn. While balance sheet expansions have become familiar been widely studied, normalization is less well understood. This paper provides first analysis of the financial market effects based on U.S. experience 2017 2019. We find evidence that unwinding past purchases tightens conditions. However, we show these cannot be merely portrayed as quantitative easing reverse. In particular, generally lacked large announcement characterized easing. Instead, manifested upon implementation surfaced, part, through larger liquidity than were evident during various phases expansion.