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Financial Crisis And Quantitative Easing: Can Broad Money Tell Us Anything?

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  • DAVID COBHAM
  • YUE KANG

Abstract

When Bank of England (and the Federal Reserve Board) introduced their quantitative easing (QE) operations they emphasised the effects on money and credit, but much of their empirical research on the effects of QE focuses on long-term interest rates. We use a flow of funds matrix with an independent central bank to show the implications of QE and other monetary developments, and argue that the financial crisis, the fiscal expansion and QE are likely to have constituted major exogenous shocks to money and credit in the UK which could not be digested immediately by the usual adjustment mechanisms. We present regressions of a reduced form model which considers the growth of nominal spending as determined by the growth of nominal money and other variables. These results suggest that money was not important during the Great Moderation but has had a much larger role in the period of the crisis and QE. We then use these estimates to illustrate the effects of the financial crisis and QE. We conclude that it would be useful to incorporate money and/or credit in wider macroeconometric models of the UK economy.
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Suggested Citation

  • David Cobham & Yue Kang, 2012. "Financial Crisis And Quantitative Easing: Can Broad Money Tell Us Anything?," Manchester School, University of Manchester, vol. 80, pages 54-76, September.
    • Handle: RePEc:bla:manchs:v:80:y:2012:i::p:54-76
    DOI: j.1467-9957.2012.02323.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9957.2012.02323.x
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    Cited by:

    1. Jeffrey Kurebwa, 2021. "Implications of Illicit Financial Flows on Zimbabwe's Development," International Journal of World Policy and Development Studies, Academic Research Publishing Group, vol. 7(2), pages 27-34, 06-2021.
    2. David Cobham, 2013. "Monetary policy under the Labour government: the first 13 years of the MPC," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 29(1), pages 47-70, SPRING.
    3. David Cobham, 2013. "Monetary policy under the Labour government 1997-2010: the first 13 years of the MPC," Heriot-Watt University Economics Discussion Papers 1302, Department of Economics, School of Management and Languages, Heriot Watt University.
    4. Jakub Janus, 2016. "The Transmission Mechanism Of Unconventional Monetary Policy," Oeconomia Copernicana, Institute of Economic Research, vol. 7(1), pages 7-21, March.
    5. Bastanzad, Hossein, 2014. "A New Policy Environment to Achieve Monetary Goals," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 9(4), pages 73-108, July.
    6. Philippine Cour-Thimann & Bernhard Winkler, 2012. "The ECB’s non-standard monetary policy measures: the role of institutional factors and financial structure," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 28(4), pages 765-803, WINTER.
    7. James Cloyne & Ryland Thomas & Alex Tuckett & Samuel Wills, 2015. "A sectoral framework for analyzing money, credit and unconventional monetary policy," Bank of England working papers 556, Bank of England.
    8. James Cloyne & Ryland Thomas & Alex Tuckett & Samuel Wills, 2015. "An Empirical Sectoral Model of Unconventional Monetary Policy: The Impact of QE," Manchester School, University of Manchester, vol. 83, pages 51-82, September.
    9. Richard G. Anderson & Marcelle Chauvet & Barry Jones, 2015. "Nonlinear Relationship Between Permanent and Transitory Components of Monetary Aggregates and the Economy," Econometric Reviews, Taylor & Francis Journals, vol. 34(1-2), pages 228-254, February.
    10. Ryan-Collins, Josh & Werner, Richard A. & Castle, Jennifer, 2016. "A half-century diversion of monetary policy? An empirical horse-race to identify the UK variable most likely to deliver the desired nominal GDP growth rate," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 158-176.
    11. David Cobham, 2015. "Monetary Analysis and Monetary Policy Frameworks: Introduction," Manchester School, University of Manchester, vol. 83, pages 1-4, September.
    12. Chang, Jui-Chuan Della & Chang, Kuang-Liang, 2018. "The asymmetric effects of U.S. large-scale asset purchases on the volatility of the Canadian dollar futures market," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 15-28.

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