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The Financial Market Impact of Quantitative Easing in the United Kingdom

Author

Listed:
  • 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.

Suggested Citation

  • Michael A. S. Joyce & Ana Lasaosa & Ibrahim Stevens & Matthew Tong, 2011. "The Financial Market Impact of Quantitative Easing in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 113-161, September.
  • Handle: RePEc:ijc:ijcjou:y:2011:q:3:a:5
    as

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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    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. Shigenori Shiratsuka, 2010. "Size and Composition of the Central Bank Balance Sheet: Revisiting Japan fs Experience of the Quantitative Easing Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 79-106, November.
    5. 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.
    6. Claudio Borio & Piti Disyatat, 2010. "Unconventional Monetary Policies: An Appraisal," Manchester School, University of Manchester, vol. 78(s1), pages 53-89, September.
    7. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
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    11. 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.
    12. 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.
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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