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

  • Lyonnet, Victor
  • Werner, Richard A.
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    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.

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    File URL: http://econstor.eu/bitstream/10419/57361/1/671921002.pdf
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    Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2011/29.

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    Date of creation: 2011
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    Handle: RePEc:zbw:cfswop:201129
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    1. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
    2. 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.
    3. Nobuyuki Oda & Kazuo Ueda, 2007. "The Effects Of The Bank Of Japan'S Zero Interest Rate Commitment And Quantitative Monetary Easing On The Yield Curve: A Macro-Finance Approach," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 303-328.
    4. Roberto Rigobon & Brian Sack, 2001. "Measuring the reaction of monetary policy to the stock market," Finance and Economics Discussion Series 2001-14, Board of Governors of the Federal Reserve System (U.S.).
    5. 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.
    6. Vasco Curdia & Michael Woodford, 2010. "The Central Bank Balance Sheet as an Instrument of Monetary Policy," Discussion Papers 0910-16, Columbia University, Department of Economics.
    7. Adam B. Ashcraft, 2003. "Are banks really special? New evidence from the FDIC-induced failure of healthy banks," Staff Reports 176, Federal Reserve Bank of New York.
    8. 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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