Advanced Search
MyIDEAS: Login to save this paper or follow this series

Assessing the economy-wide effects of quantitative easing

Contents:

Author Info

  • Kapetanios, George

    ()
    (Queen Mary, University of London)

  • Mumtaz, Haroon

    ()
    (Bank of England)

  • Stevens, Ibrahim

    ()
    (Bank of England)

  • Theodoridis, Konstantinos

    ()
    (Bank of England)

Abstract

This paper examines the macroeconomic impact of the first round of quantitative easing (QE) by the Bank of England which started in March 2009. Although Bank Rate, the UK policy rate, was reduced to ½%, effectively its lower bound, the Bank’s Monetary Policy Committee felt that additional measures were necessary to meet the inflation target in the medium term. The policy of QE entailed buying private and mainly public assets in large quantities using central bank money, with the aim of injecting money into the economy and boosting nominal spending, in order to help achieve the Bank’s inflation target. Over the period from March 2009 to January 2010, the Bank of England purchased £200 billion of assets, mainly consisting of government securities. We attempt to quantify the effects of these purchases by focusing on the impact of lower long-term interest rates on the wider economy. This is motivated by empirical evidence indicating that QE purchases reduced long-term UK government bond yields by about 100 basis points. Other transmission channels are also possible, but are not considered in this paper. We use three different models to conduct counterfactual simulations to estimate the impact of QE on output and inflation: a large Bayesian VAR; a change-point structural VAR; and a time-varying parameter VAR. Our preferred average estimates from the three models suggest that QE may have had a peak effect on the level of real GDP of around 1½% and a peak effect on annual CPI inflation of about 1¼ percentage points. These estimates are shown to vary considerably across the different model specifications, and with the precise assumptions made to generate the counterfactual simulations, and are therefore subject to considerable uncertainty.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2012/wp443.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 443.

as in new window
Length: 45 pages
Date of creation: 27 Jan 2012
Date of revision:
Handle: RePEc:boe:boeewp:0443

Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Email:
Web page: http://www.bankofengland.co.uk/
More information through EDIRC

Related research

Keywords: Bayesian methods; large-scale asset purchases; quantitative easing; vector autoregressions;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Eric T. Swanson, 2011. "Let’s twist again: a high-frequency event-study analysis of operation twist and its implications for QE2," Working Paper Series 2011-08, Federal Reserve Bank of San Francisco.
  2. Domenico Giannone & Martha Banbura & Lucrezia Reichlin, 2008. "Bayesian VARs with large panels," ULB Institutional Repository 2013/13388, ULB -- Universite Libre de Bruxelles.
  3. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 3-46, 02.
  4. 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.
  5. Dimitri Vayanos & Robin Greenwood, 2008. "Bond Supply and Excess Bond Returns," FMG Discussion Papers dp607, Financial Markets Group.
  6. Baumeister, Christiane & Benati, Luca, 2010. "Unconventional monetary policy and the great recession - Estimating the impact of a compression in the yield spread at the zero lower bound," Working Paper Series 1258, European Central Bank.
  7. Carriero, Andrea & Kapetanios, George & Marcellino, Massimiliano, 2010. "Forecasting Government Bond Yields with Large Bayesian VARs," CEPR Discussion Papers 7796, C.E.P.R. Discussion Papers.
  8. Daniel F. Waggoner & Tao Zha, 1998. "Conditional forecasts in dynamic multivariate models," Working Paper 98-22, Federal Reserve Bank of Atlanta.
  9. Vasco Cúrdia & Michael Woodford, 2010. "Conventional and unconventional monetary policy," Review, Federal Reserve Bank of St. Louis, issue May, pages 229-264.
  10. Takeshi Kimura & David Small, 2004. "Quantitative monetary easing and risk in financial asset markets," Finance and Economics Discussion Series 2004-57, Board of Governors of the Federal Reserve System (U.S.).
  11. Lawrence Christiano & Daisuke Ikeda, 2011. "Government Policy, Credit Markets and Economic Activity," NBER Working Papers 17142, National Bureau of Economic Research, Inc.
  12. Dimitri Vayanos & Jean-Luc Vila, 2009. "A Preferred-Habitat Model of the Term Structure of Interest Rates," NBER Working Papers 15487, National Bureau of Economic Research, Inc.
  13. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," NBER Working Papers 17555, National Bureau of Economic Research, Inc.
  14. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  15. Javier Andres & J. David López-Salido & Edward Nelson, 2004. "Tobin's imperfect asset substitution in optimizing general equilibrium," Working Papers 2004-003, Federal Reserve Bank of St. Louis.
  16. Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 162-177.
  17. Kadiyala, K Rao & Karlsson, Sune, 1997. "Numerical Methods for Estimation and Inference in Bayesian VAR-Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(2), pages 99-132, March-Apr.
  18. Hess Chung & Jean‐Philippe Laforte & David Reifschneider & John C. Williams, 2012. "Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 47-82, 02.
  19. Marta Bańbura, 2008. "Large Bayesian VARs," 2008 Meeting Papers 334, Society for Economic Dynamics.
  20. Bauwens, Luc & Lubrano, Michel & Richard, Jean-Francois, 2000. "Bayesian Inference in Dynamic Econometric Models," OUP Catalogue, Oxford University Press, number 9780198773139, Octomber.
  21. Harrison, Richard, 2012. "Asset purchase policy at the effective lower bound for interest rates," Bank of England working papers 444, Bank of England.
  22. Chib, Siddhartha, 1998. "Estimation and comparison of multiple change-point models," Journal of Econometrics, Elsevier, vol. 86(2), pages 221-241, June.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. On QE
    by chris dillow in Stumbling and Mumbling on 2012-02-06 15:06:45
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0443. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.