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The financial market impact of UK quantitative easing

Author Info

  • 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. Joseph E. Gagnon & Matthew Raskin & Julie Remache & Brian P. Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
  2. Svensson, L.E.O., 1994. "Estimating and Interpreting Foreward Interest Rates: Sweden 1992-1994," Papers 579, Stockholm - International Economic Studies.
  3. 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.
  4. 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.
  5. Hau, Harald & Massa, Massimo & Peress, Joël, 2005. "Do Demand Curves for Currencies Slope Down? Evidence from the MSCI Global Index Change," CEPR Discussion Papers 4862, C.E.P.R. Discussion Papers.
  6. 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.
  7. 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.
  8. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
  9. Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
  10. 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.
  11. 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.
  12. 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.
  13. Chadha,Jagjit S. & Holly,Sean (ed.), 2011. "Interest Rates, Prices and Liquidity," Cambridge Books, Cambridge University Press, number 9781107014732, November.
  14. 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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Cited by:

  1. Jack Meaning & James Warren, 2015. "The Transmission of Unconventional Monetary Policy in UK Government Debt Markets," National Institute Economic Review, National Institute of Economic and Social Research, vol. 234(1), pages R40-R47, November.
  2. Christopher Bowdler & Amar Radia, 2012. "Unconventional monetary policy: the assessment," Oxford Review of Economic Policy, Oxford University Press, vol. 28(4), pages 603-621, WINTER.
  3. Jessica Baker & Simon Kirby & Oriol Carreras & Jack Meaning & Rebecca Piggott, 2016. "Modelling events: the short-term economic impact of leaving the EU," NIESR Discussion Papers 461, National Institute of Economic and Social Research.
  4. Joyce, Michael & Spaltro, Marco, 2014. "Quantitative easing and bank lending: a panel data approach," Bank of England working papers 504, Bank of England.
  5. Martin, C. & Milas, C., 2012. "Quantitative Easing:a Sceptical Survey," Department of Economics Working Papers 32987, University of Bath, Department of Economics.
  6. Altavilla, Carlo & Carboni, Giacomo & Motto, Roberto, 2015. "Asset purchase programmes and financial markets: lessons from the euro area," Working Paper Series 1864, European Central Bank.
  7. Steeley, James M. & Matyushkin, Alexander, 2015. "The effects of quantitative easing on the volatility of the gilt-edged market," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 113-128.
  8. Lucian Liviu Albu & Radu Lupu & Cantemir Adrian Călin & Oana Cristina Popovici, 2014. "Estimating the Impact of Quantitative Easing On Credit Risk through an ARMA-GARCH Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 39-50, October.
  9. Steeley, James M., 2015. "The side effects of quantitative easing: Evidence from the UK bond market," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 303-336.
  10. Kenourgios, Dimitris & Papadamou, Stephanos & Dimitriou, Dimitrios, 2015. "On quantitative easing and high frequency exchange rate dynamics," Research in International Business and Finance, Elsevier, vol. 34(C), pages 110-125.
  11. Chadha, Jagjit S. & Waters, Alex, 2014. "Applying a macro-finance yield curve to UK quantitative Easing," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 68-86.
  12. Timothy Sharpe & Martin Watts, 2013. "Unconventional Monetary Policy in the UK: A Modern Money Critique," Economic Issues Journal Articles, Economic Issues, vol. 18(2), pages 41-64, September.
  13. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2015. "The QE experience : Worth a try ?," Sciences Po publications info:hdl:2441/166ip2fse39, Sciences Po.
  14. Fabrizio Zampolli, 2012. "Sovereign debt management as an instrument of monetary policy: an overview," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 97-118 Bank for International Settlements.
  15. Michael A. S. Joyce & Nick McLaren & Chris Young, 2012. "Quantitative easing in the United Kingdom: evidence from financial markets on QE1 and QE2," Oxford Review of Economic Policy, Oxford University Press, vol. 28(4), pages 671-701, WINTER.
  16. Richhild Moessner & Philip Turner, 2012. "Threat of fiscal dominance? Workshop summary," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 1-12 Bank for International Settlements.
  17. Benos, Evangelos & Zikes, Filip, 2016. "Liquidity determinants in the UK gilt market," Bank of England working papers 600, Bank of England.
  18. Churm, Rohan & Joyce, Mike & Kapetanios, George & Theodoridis, Konstantinos, 2015. "Unconventional monetary policies and the macroeconomy: the impact of the United Kingdom's QE2 and Funding for Lending Scheme," Bank of England working papers 542, Bank of England.

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