Staff Working Paper No. 624 QE: the story so far

Andrew G Haldane,

(1)

Matt Roberts-Sklar,

(2)

Tomasz Wieladek

(3)

and Chris Young

(4)

Abstract

In the past decade or so, a number of central banks have purchased assets financed by the creation of central bank reserves as a tool for loosening monetary policy – a policy often known as ‘quantitative easing’ or ‘QE’. The first half of the paper reviews the international evidence on the impact on financial markets and economic activity of this policy . It finds that these central bank balance sheet expansions had a discernible and significant impact on financial markets and the econo my . The second half of the paper provides new empirical analysis on the macroeconomic impact of central bank balance s heet expansions, across time and countries. It finds three key results. First, it is on ly when central bank balance sheet expansions are used as a monetary policy tool that they have a significant macro-economic impact. Second, there is evidence for the US that the effectiven ess of QE may vary over time, depending on the state of the economy and liquidity of the financial system. And third, QE can have strong spill-over effects cross-border , acting mainly via financial channels. For example, the impact of US QE on UK economic activity may be as large as the impact on US economic activity.

Key words:

Quantitative Easing, QE, unconventional monetary policy, central bank balance sheet.

JEL classification:

E6, E43, E44, E52, E58.

(1) Bank of England. Email: andy.haldane @bankofengland.co. uk (2) Bank of England. Email matt.roberts -sklar@ban kofenglan d.co.uk (3) Barclays Capital a nd CEPR . Email: tomaszwiela dek@gm ail.com (4) Bank of Engla nd. Email: chris.youn g@bank ofengland .co.uk The views expressed in this paper are those of the authors, and not necessarily those of the Bank of England or its committees. Tomasz Wieladek’s main analytical contribution to this paper was completed while employed by the Bank of England and does not represent the views of Barclays. The authors would like to thank Max Capel, Jenny Lam, Alison Schomberg and Mohammed W azzi for their excellent research assist ance. The authors would also like to thank Jeremy Franklin, Peter Gee, David Latto and Garry Y oung for input and helpful comments on this paper. The authors are grateful to Nia ll Ferguson, Andreas Schaab and Moritz Schularick for giving permission to use their historical data on central bank balance sheets. Information on the Bank’s working paper series can be found at www.bankofengland.co.uk/research/Pages/workingpapers/default.aspx Publications Team, Bank of England, Threadneedle Street, London, EC2R 8AH Telephone +44 (0)20 7601 4030 Fax +44 (0)20 7601 3298 email publication s@banko fengland .co.uk

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