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The financial market impact of UK quantitative easing

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  • Francis Breedon
  • Jagjit S. Chadha
  • Alex Waters

Abstract

After outlining some of the monetary developments associated with quantitative easing (QE), we measure the impact of the UK’s initial 2009–10 QE programme on bonds and other assets. First, we use a macro-finance yield curve both to create a counterfactual path for bond yields and to estimate the impact of QE directly. Second, we analyse the impact of individual QE operations on a range of asset prices. We find that QE significantly lowered government bond yields through the portfolio balance channel—by around 50 or so basis points. We also uncover significant effects of individual operations but limited pass-through to other assets. Copyright 2012, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review Of Economic Policy.

Volume (Year): 28 (2012)
Issue (Month): 4 (WINTER)
Pages: 702-728

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Handle: RePEc:oup:oxford:v:28:y:2012:i:4:p:702-728

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Web page: http://oxrep.oupjournals.org/

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  1. 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.
  2. Jonathan H. Wright, 2011. "What does Monetary Policy do to Long-Term Interest Rates at the Zero Lower Bound?," NBER Working Papers 17154, National Bureau of Economic Research, Inc.
  3. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
  4. Francis X. Diebold & Glenn D. Rudebusch & S. Boragan Aruoba, 2004. "The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach," NBER Working Papers 10616, National Bureau of Economic Research, Inc.
  5. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2," 2011 Meeting Papers 982, Society for Economic Dynamics.
  6. Chadha,Jagjit S. & Holly,Sean (ed.), 2011. "Interest Rates, Prices and Liquidity," Cambridge Books, Cambridge University Press, number 9781107014732, April.
  7. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
  8. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  9. Martin, C. & Milas, C., 2012. "Quantitative Easing : a Sceptical Survey," Department of Economics Working Papers 32987, University of Bath, Department of Economics.
  10. Lars E. O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates," IMF Working Papers 94/114, International Monetary Fund.
  11. António Afonso & Manuel M. F. Martins, 2010. "Level, Slope, Curvature of Sovereign Yield Curve and Fiscal Behaviour," Working Papers Department of Economics 2010/23, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  12. Hau, Harald & Massa, Massimo & Peress, Joël, 2005. "Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change," CEPR Discussion Papers 4862, C.E.P.R. Discussion Papers.
  13. Farooq Ahmad & James Steeley, 2008. "Secondary market pricing behaviour around UK bond auctions," Applied Financial Economics, Taylor & Francis Journals, vol. 18(9), pages 691-699.
  14. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
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Cited by:
  1. Fabrizio Zampolli, 2012. "Sovereign debt management as an instrument of monetary policy: an overview," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 97-118 Bank for International Settlements.
  2. Christopher Martin & Costas Milas, 2012. "Quantitative easing: a sceptical survey," Oxford Review of Economic Policy, Oxford University Press, vol. 28(4), pages 750-764, WINTER.
  3. Chadha, Jagjit S. & Waters, Alex, 2014. "Applying a macro-finance yield curve to UK quantitative Easing," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 68-86.
  4. Richhild Moessner & Philip Turner, 2012. "Threat of fiscal dominance? Workshop summary," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 1-12 Bank for International Settlements.
  5. Timothy Sharpe & Martin Watts, 2013. "Unconventional Monetary Policy in the UK: A Modern Money Critique," Economic Issues Journal Articles, Economic Issues, vol. 18(2), pages 41-64, September.

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