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The inefficiency of Quantitative Easing in the Euro Area

Author

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  • Nektarios A. Michail

    (Central Bank of Cyprus)

  • Kyriaki G. LouKa

    (Central Bank of Cyprus)

Abstract

We examine whether quantitative easing had an impact on output and inflation in the euro area. Using a BVAR model, over the March 2015 - December 2021 period, our results suggest that quantitative easing is an inefficient policy tool. In particular, following a shock that increases asset purchases by around 1% of euro area GDP, inflation increases by around 0.01%, while industrial production rises by 0.3%. The biggest beneficiary of quantitative easing is the stock market, rising more than 2% after the shock. Since only a very small share of the general populace holds stocks, this has adverse inequality effects.

Suggested Citation

  • Nektarios A. Michail & Kyriaki G. LouKa, 2023. "The inefficiency of Quantitative Easing in the Euro Area," Working Papers 2023-3, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2023-3
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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

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