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The lessons from QE and other "unconventional" monetary policies: Evidence from the Bank of England

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  • Lyonnet, Victor
  • Werner, Richard A.

Abstract

This paper investigates the effectiveness of the quantitative easing policy, as implemented by the Bank of England in March 2009. Similar policies had been previously implemented in Japan, the U.S. and the Eurozone. The effectiveness is measured by the impact of Bank of England policies (including, but not limited to QE) on nominal GDP growth - the declared goal of the policy, according to the Bank of England. Unlike the majority of the literature on the topic, the general-to-specific econometric modeling methodology (a.k.a. the Hendry or LSE methodology) is employed for this purpose. The empirical analysis indicates that QE as defined and announced in March 2009 had no apparent effect on the UK economy. Meanwhile, it is found that a policy of quantitative easing defined in the original sense of the term (Werner, 1994) is supported by empirical evidence: a stable relationship between a lending aggregate (disaggregated M4 lending, i.e. bank credit for GDP transactions) and nominal GDP is found. The findings imply that BoE policy should more directly target the growth of bank credit for GDP-transactions.

Suggested Citation

  • Lyonnet, Victor & Werner, Richard A., 2011. "The lessons from QE and other "unconventional" monetary policies: Evidence from the Bank of England," CFS Working Paper Series 2011/29, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:201129
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    File URL: https://www.econstor.eu/bitstream/10419/57361/1/671921002.pdf
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    References listed on IDEAS

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    3. Kazuo Ueda, 2007. "Trying to Make Sense of the Bank of Japan's Monetary Policy since the Exit from Quantitative Easing," International Finance, Wiley Blackwell, vol. 10(3), pages 301-316, December.
    4. Cúrdia, Vasco & Woodford, Michael, 2011. "The central-bank balance sheet as an instrument of monetarypolicy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 54-79, January.
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    6. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction of Monetary Policy to the Stock Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 639-669.
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    9. Clouse James & Henderson Dale & Orphanides Athanasios & Small David H. & Tinsley P.A., 2003. "Monetary Policy When the Nominal Short-Term Interest Rate is Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-65, September.
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    More about this item

    Keywords

    Central Banking; General-to-specific Methodology; Monetary Policy; Nominal GDP Growth; Quantitative Easing;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • 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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