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The financial market impact of UK quantitative easing

Author Info

Listed author(s):
  • 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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File URL: http://hdl.handle.net/10.1093/oxrep/grs033
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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
Contact details of provider: Web page: http://oxrep.oupjournals.org/

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Find related papers by 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
  • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
  • 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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  1. Harald Hau & Massimo Massa & Joel Peress, 2010. "Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1681-1717, April.
  2. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
  3. Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
  4. 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.
  5. 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.
  6. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
  7. 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.
  8. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
  9. Chadha,Jagjit S. & Holly,Sean (ed.), 2011. "Interest Rates, Prices and Liquidity," Cambridge Books, Cambridge University Press, number 9781107014732, Diciembre.
  10. Joseph E. Gagnon & Matthew Raskin & Julie Remache & Brian P. Sack, 2011. "Large-scale asset purchases by the Federal Reserve: did they work?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 41-59.
  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. 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.
  13. Hancock, Diana & Passmore, Wayne, 2011. "Did the Federal Reserve's MBS purchase program lower mortgage rates?," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 498-514.
  14. Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006. "The macroeconomy and the yield curve: a dynamic latent factor approach," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 309-338.
  15. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
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