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Are the effects of quantitative easing and tightening state contingent?

Author

Listed:
  • Michael Ellington

    (University of Liverpool Management School)

  • Costas Milas

    (University of Liverpool Management School)

  • Ryland Thomas

    (Bank of England)

Abstract

We provide evidence that quantitative easing (QE) and quantitative tightening (QT) policies are state contingent. Using 60 years of UK data on public-sector debt sales to the banking system we identify a novel bank funding shock that indicates the impact of unconventional monetary policies changes significantly over time, and that regimes are non-recurrent. Our approach also permits an appraisal of state contingency at different stages of transmission. Over successive QE rounds, we find the responsiveness of government bond yields to a given amount of QE falls. However, demand becomes more responsive to yield changes, while inflation exhibits more persistence and greater sensitivity to the output gap. In the presence of such state contingencies, our results suggest careful monitoring is needed when assessing the impact of QE policies.

Suggested Citation

  • Michael Ellington & Costas Milas & Ryland Thomas, 2026. "Are the effects of quantitative easing and tightening state contingent?," Bank of England Staff Working Paper series 1185, Bank of England.
    • Handle: RePEc:boe:boeewp:023307
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2026/are-the-effects-of-qe-and-tightening-state-contingent.pdf
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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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