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The financial market impact of quantitative easing

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Author Info

  • Joyce, Michael

    () (Bank of England)

  • Lasaosa, Ana

    () (Bank of England)

  • Stevens , Ibrahim

    () (Bank of England)

  • Tong, Matthew

    () (Bank of England)

Abstract

As part of its response to the global banking crisis and a sharp downturn in domestic economic prospects, the Bank of England’s Monetary Policy Committee (MPC) began a programme of large-scale asset purchases (commonly referred to as quantitative easing or QE) in March 2009, with the aim of injecting additional money into the economy and so increasing nominal spending growth to a rate consistent with meeting the CPI inflation target in the medium term. By February 2010, the MPC had made £200 billion of purchases, most of which had been of UK government securities (gilts). Based on analysis of the reaction of financial market prices and econometric estimates, this paper attempts to assess the impact of the Bank’s QE policy on asset prices. Our estimates of the reaction of gilt prices to the programme suggest that QE may have depressed gilt yields by about 100 basis points. On balance the evidence seems to suggest that the largest part of the impact of QE came through a portfolio rebalancing channel. 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

Paper provided by Bank of England in its series Bank of England working papers with number 393.

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Length: 44 pages
Date of creation: 12 Jul 2010
Date of revision:
Handle: RePEc:boe:boeewp:0393

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Keywords: QE; monetary policy; asset purchases; asset prices;

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  1. James Clouse & Dale Henderson & Athanasios Orphanides & David H. Small & P.A. Tinsley, 2003. "Monetary Policy When the Nominal Short-Term Interest Rate is Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 12.
  2. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary policy alternatives at the zero bound: an empirical assessment," Finance and Economics Discussion Series 2004-48, Board of Governors of the Federal Reserve System (U.S.).
  3. 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.
  4. 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.
  5. Charles Engel & Jeffrey A. Frankel & Kenneth A. Froot & Anthony P. Rodrigues, 1989. "Conditional Mean-Variance Efficiency of the U.S. Stock Market," NBER Working Papers 2890, National Bureau of Economic Research, Inc.
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  1. What does QE do?
    by chris dillow in Stumbling and Mumbling on 2010-11-07 10:57:05
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