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The Financial Market Impact of Quantitative Easing in the United Kingdom

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Author Info

  • Michael A. S. Joyce

    (Bank of England)

  • Ana Lasaosa

    (Bank of England)

  • Ibrahim Stevens

    (Bank of England)

  • Matthew Tong

    (Bank of England)

Abstract

This paper investigates the impact of the Bank of England’s quantitative easing policy on UK asset prices. Based on analysis of the reaction of financial market prices and modelbased estimates, we find that asset purchases financed by the issuance of central bank reserves - which by February 2010 totalled £200 billion - may have depressed medium to longterm government bond yields by about 100 basis points, with the largest part of the impact coming through a portfolio balance effect. The wider impact on other asset prices is more difficult to disentangle from other influences: the initial impact was muted, but the overall effects were potentially much larger, though subject to considerable uncertainty.

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 7 (2011)
Issue (Month): 3 (September)
Pages: 113-161

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Handle: RePEc:ijc:ijcjou:y:2011:q:3:a:5

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  1. Vayanos, Dimitri & Vila, Jean-Luc, 2009. "A Preferred-Habitat Model of the Term Structure of Interest Rates," CEPR Discussion Papers 7547, C.E.P.R. Discussion Papers.
  2. Claudio Borio & Piti Disyatat, 2010. "Unconventional Monetary Policies: An Appraisal," Manchester School, University of Manchester, vol. 78(s1), pages 53-89, 09.
  3. Ben S. Bernanke & Vincent R. Reinhart, 2004. "Conducting Monetary Policy at Very Low Short-Term Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 85-90, May.
  4. Clouse James & Henderson Dale & Orphanides Athanasios & Small David H. & Tinsley P.A., 2003. "Monetary Policy When the Nominal Short-Term Interest Rate is Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-65, September.
  5. Inkinen, Mika & Stringa, Marco & Voutsinou, Kyriaki, 2010. "Interpreting equity price movements since the start of the financial crisis," Bank of England Quarterly Bulletin, Bank of England, vol. 50(1), pages 24-33.
  6. Shigenori Shiratsuka, 2010. "Size and composition of the central bank balance sheet: revisiting Japan's experience of the quantitative easing policy," Globalization and Monetary Policy Institute Working Paper 42, Federal Reserve Bank of Dallas.
  7. André Meier, 2009. "Panacea, Curse, or Nonevent? Unconventional Monetary Policy in the United Kingdom," IMF Working Papers 09/163, International Monetary Fund.
  8. Capie,Forrest, 2010. "The Bank of England," Cambridge Books, Cambridge University Press, number 9780521192828, October.
  9. Andrés, Javier & López-Salido, J David & Nelson, Edward, 2004. "Tobin's Imperfect Asset Substitution in Optimizing General Equilibrium," CEPR Discussion Papers 4336, C.E.P.R. Discussion Papers.
  10. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
  11. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
  12. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
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