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Quantitative Easing: A Sceptical Survey

  • Christopher Martin

    ()

    (Department of Economics, University of Bath, UK)

  • Costas Milas

    ()

    (Management School, University of Liverpool, UK; The Rimini Centre of Economic Analysis, Italy)

Evaluation of quantitative easing (QE) is difficult as it is only used in response to severe and unusual economic difficulties. Despite this, we argue that two main conclusions can be drawn from a sceptical reading of the evidence. First, large-scale asset purchases reduce government bond rates, especially at the longer end of the yield curve. However, this effect may be temporary and is small if bond rates are already low, while initial waves of QE are more effective than subsequent programmes. Second, QE appears to have been effective in late 2008 and 2009, preventing even larger declines in output and inflation than were experienced. We argue that the literature is limited, relying on similar methodologies and largely originating in central banks. Exploration of alternative approaches to QE would be useful in widening an evidence base that is currently too narrow.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 73_12.

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Date of creation: Nov 2012
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Handle: RePEc:rim:rimwps:73_12
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  1. Francis Breedon & Jagjit S Chadha & Alex Waters, 2012. "The financial market impact of UK quantitative easing," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 277-304 Bank for International Settlements.
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  9. Baumeister, Christiane & Benati, Luca, 2010. "Unconventional monetary policy and the great recession - Estimating the impact of a compression in the yield spread at the zero lower bound," Working Paper Series 1258, European Central Bank.
  10. 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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  12. 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.
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  14. Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December.
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  16. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
  17. 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.
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