Impact Of Quantitative Easing Research Articles

Conventional vs. unconventional monetary policy under credit regulation

Abstract We provide empirical evidence that the impact of quantitative easing (QE) programs on investment is weaker for countries with high-credit market regulations. We then extend a simple DSGE model with segmented financial markets to include credit regulation and examine its impact on the transmission of conventional and unconventional monetary policies. In our model, the government requires banks to hold a fraction of their assets in government debt. We show that the presence of such regulation can invert monetary transmission under QE policy: An expansionary QE program raises term premiums on corporate bonds and causes a contraction instead of an expansion in the economy. Such a perversion is absent under conventional policy. Further, in contrast to Carlstrom et al. (2017), we show that a simple Taylor rule welfare dominates a term premium peg under financial shocks, while the peg does better in the case of non-financial shocks.

The Impact of Quantitative Easing on Stock Prices in the U.S. Stock Market - Structural VAR Model Analysis

In an effort for future investment implications, the current study examined the relationship between historical Quantitative Easing (QE) programs and the stock market. This study analyzed weekly basis data in the United States between 2007 and 2023. Through a Vector auto-regression (VAR) model, a significant rise following a quick drop in stock prices to a positive shock in QE was discovered, indicating lagged response. Further robustness check proved the validation of relationship, by sectioning the whole data set into 4 periods corresponding to four QE programs, except relatively insignificant effects in QE2 and QE3 periods. These lagged responses were pointed out firstly in this paper and connected with policy motivations and contemporaneous economy environment across programs. The findings may enable investors to anticipate market movements and generate respectable returns in the event of such unconventional money shocks.

The Impact of Quantitative Easing on The U.S. Economy

Quantitative easing has had a profound impact on various aspects of the US economy, including social welfare and wealth disparities, education reforms, changes in government fiscal strategies and financial regulation, alterations in consumption savings and investment patterns, as well as corporate strategy adjustments. Additionally, this policy has significantly influenced academia, policymaking, and public discourse. The recession was not limited to the financial markets but affected all sectors of society. In a low-interest-rate environment, capital seeking higher returns flooded into the stock and real estate markets leading to soaring prices. While excessive borrowing and spending may stimulate short-term economic growth; it could trigger a credit crunch that would further depress growth in the long run. In the current global low-interest rate environment, higher education institutions have the option of obtaining funds through debt financing; however, they must remain vigilant to fluctuations in tuition and educational burden. Collaboration between governments, educational institutions, employers and students is crucial for mitigating this crisis. Vocational education has become a more cost-effective and adaptable alternative due to its lower tuition fees. Furthermore, quantitative easing may impose constraints on future government policymaking regarding debt-related issues. The government should closely monitor changes in inflationary pressures, take measures to contain the threat of high inflation to economic stability, and prevent long-term debt accumulation from leading to fiscal deficits and cuts in public services.

The Impact of Corporate QE on Liquidity: Evidence from the UK

Abstract There is substantial uncertainty about the impact of quantitative easing on market liquidity. Identifying the impact is particularly challenging due to the potential for reverse causality, because liquidity considerations might affect quantitative easing purchases. We address this challenge by studying the Bank of England’s 2016–7 Corporate Bond Purchase Scheme. In particular, we use granular offer-level data from the Corporate Bond Purchase Scheme auctions to construct proxy measures for the Bank of England's demand for bonds and auction participants’ supply of bonds, allowing us to control for any reverse causality from liquidity to purchases. We find that Corporate Bond Purchase Scheme purchases improved the liquidity of purchased bonds.

Pre- and Post-Global Financial Crisis Policy Multipliers

This paper estimates the change in policy multipliers in the U.S. relative to their pre-2008 financial crisis levels. It also estimates the likely impact of the 2020 stimulus packages implemented to address COVID-19. The analysis is based on an augmented Blanchard-Perotti model that allows for the dynamic effects of shocks to the central bank balance sheet, real interest rates and debt levels on economic activity. The results suggest that expenditure multipliers have fallen post-2008, mostly because of higher government debt, implying that the effectiveness of fiscal policy has declined. They also suggest that the impact of quantitative easing is beneficial, but requires sizable interventions to have noticeable effects on real GDP. Because of rising debt stocks, dealing with a crisis is becoming more and more costly despite the current low interest rate environment.

COVID-19 and Stock Market Liquidity: An Analysis of Emerging and Developed Markets

Using a panel of indices for five developed market and five emerging markets for the period from 31 December 2019 to 19 June 2020, the relationship between stock market liquidity and COVID-19 pandemic is examined. The study is the first to interrogate nexus using three measures of liquidity, the percentage spread, market depth and Amihud’s ( 2002 ) ILLIQ measure. The pandemic is a global health condition with financial market implications, the results indicate that, stock market liquidity improved as we found a negative and significant relationship between illiquidity and COVID-19 across all the liquidity measures in all markets. However, improvements in stock market liquidity were more prevalent in developed markets relative to emerging markets. The results show that volatility negatively affected liquidity when illiquidity was measured by spread. Future research should focus on the impact of quantitative easing on stock markets liquidity during market turmoil.

The Impact of Quantitative Easing on Inequality in Japan

This paper studies the distributional impact of unconventional monetary policy in Japan after the 2008 financial crisis. I use a structural vector autoregression model to estimate the impact of quantitative easing on income inequality. The results show that quantitative easing has increased inequality in Japan. However, the estimated magnitude of this effect greatly depends on which inequality variable is used.

Unconventional US Monetary Policy: Impact on the Indian Economy

This article examines the impact of the US Quantitative Easing (QE) on the Indian economy. Against the backdrop of indications of economic slowdown worldwide and developing countries lowering the interest rates and restarting the treasury purchases, it aims to understand the influence US QE had on Indian economy and how it will impact way forward. Macroeconomic variables pertaining to India and the USA were examined from September 2008 to June 2019 (fortnightly data) using the vector error correction method model. It was found that the influence of the US monetary base on the Indian money supply was far more as compared to the US policy rate. Overall, the impact of QE on the Indian economy has not been as large as on the other economies of the world due to regular RBI intervention in terms of interest rates, exchange rates and other active monetary policy measures. JEL Classification Codes: E44, E52, E58, F32, O16

The impact of quantitative easing on liquidity creation

• We study the impact of the Fed’s three rounds of QE on bank liquidity creation. • Banks create liquidity by financing illiquid assets with liquid liabilities. • We use a sample of US banks over 2006-14 and a difference-in-difference methodology. • Banks more exposed to QE increased lending during the first and third round of QE. • Liquidity creation among treated banks was higher only during the last round of QE. We study the effects of the US Federal Reserve’s large-scale asset purchase programs during 2008–2014 on bank liquidity creation. Banks create liquidity when they transform the liquid reserves resulted from quantitative easing (QE) into illiquid assets. As the composition of banks’ loan portfolio affects the amount of liquidity it creates, the impact of quantitative easing on liquidity creation is not a priori clear. Using a difference-in-difference identification strategy, we find that banks more affected by the policy increased lending relative to those less affected, mainly during the first and third round of QE. However, we only find a strong effect of the policy on liquidity creation during the third round of QE. This points to a weaker impact on the real economy during the first two rounds, when more exposed banks transformed the reserves created through QE into less illiquid assets, such as real estate mortgages.

The impact of quantitative easing and carry trade on the real estate market in Hong Kong

This paper examines how the quantitative easing (QE) policy conducted by Japan, EU and the US raised Hong Kong’s real estate prices through activities in carry trade and in Hong Kong’s real estate investment trust (H-REIT) market. The empirical results demonstrated two new channels of impact. The first new channel shows that Japan’s QE policy did affect the H-REIT prices in money market, which then led to a rise in office price after a lag of three months. The office prices were more persistently affected by the channel through the H-REIT than through the stock prices. Another new channel shows that the QE policy by Japan, the EU and the US since 2008 directly pushed up the office prices. These two new channels imply that the QE policy spilled over to not only the money market, but also the real estate market through the H-REIT market and carry trade. Moreover, the empirical finding is stronger in the price of the ordinary grade office than in the high-grade office, suggesting these new channels have already become common. Moreover, even though introducing control variables in the real estate economics literature, the results are robust.

The Impact of Quantitative Easing on Bank Loan Supply and Monetary Policy Implementation in the Euro Area

AbstractIn March 2015, the Eurosystem launched its QE programme. The asset purchases induced a rapid and strong increase in excess reserves, implying a structural liquidity surplus in the euro area banking sector. Against this background, the first part of this paper analyses the Eurosystem’s liquidity management duringnormal times,crisis timesandtimes of too low inflation. With a focus on the latter, the second part of this paper develops a relatively simple theoretical model in which banks operate under a structural liquidity surplus. The model shows that increasing excess reserves have no or even a contractionary impact on bank loan supply. As the newly created excess reserves are heterogeneously distributed across euro area countries, the impact of QE on bank loan supply may differ across countries. Moreover, we derive implications for monetary policy implementation. Increases in the central bank’s main refinancing rate as well as in the minimum reserve ratio and decreases in the central bank’s deposit rate develop expansionary effects on loan supply – contrary to the case in which banks face a structural liquidity deficit.

The Impact of Quantitative Easing on Liquidity Creation

We study the effects of the US Federal Reserve’s large-scale asset purchase programs during 2008-2014 on bank liquidity creation. Banks create liquidity when they transform the liquid reserves resulted from quantitative easing into illiquid assets. As the composition of banks’ loan portfolio affects the amount of liquidity it creates, the impact of quantitative easing on liquidity creation is not a priori clear. Using a difference-in-difference identification strategy, we find that banks that were more exposed to the policy increased lending relative to a control group. However, while the increase in lending was present across all three rounds of quantitative easing, we only find a strong effect on liquidity creation during the last round. This suggests, that during the first two rounds, affected banks transformed the reserves created through the asset purchase program into less illiquid assets, such as real estate mortgages, pointing to a weaker impact of the policy on the real economy.

On the impact of quantitative easing on credit standards and systemic risk: The Japanese experience

This study provides empirical evidence on the impact of quantitative easing on credit standards and systemic risk in Japanese banks. Quantitative easing leads to softened credit standards of approving loan applications. Bank systemic risk, however, decreases following the expansion of asset purchase programmes.

The impact of quantitative easing on UK bank lending: Why banks do not lend to businesses?

Abstract The growing proportion of UK bank lending to the financial sector reached a peak in 2007 just before the onset of the Global Financial Crisis (GFC). This marks a trend in the dwindling amount of bank lending to private sector non-financial corporations (PNFCs), which was exacerbated with the Great Recession. Many central banks aimed to revive bank lending with quantitative easing (QE) and unconventional monetary policy. We propose an agent based computational economics (ACE) model which combines the main factors in the economic environment of QE and Basel regulatory framework to analyse why UK banks do not prioritize lending to non-financial businesses. The lower bond yields caused by QE encourage big firms to substitute away from bank borrowing to bond issuance. In addition, the risk weight regime of Basel II/III on capital induces banks to favour mortgages over business loans to small and medium enterprises (SMEs). The combination of lower bond yields and Basel II/III capital requirements on banks, which, respectively, impact demand and supply of credit in the UK, plays a role in the drop of bank loans to businesses. The ACE model aims to reinstate policy regimes that form constraints and incentives for the behaviour of market participants to provide the causal factors in observed macro-economic phenomena.

The Impact of QE on Liquidity: Evidence from the UK Corporate Bond Purchase Scheme

Quantitative easing (QE) has become a key component of the monetary policy toolkit since the global financial crisis. However substantial uncertainty remains about the impact of QE on market liquidity. Identifying the impact is particularly challenging due to the potential for reverse causality, because liquidity considerations might affect purchases. To address this challenge, we study the Bank of England’s Corporate Bond Purchase Scheme (CBPS), in which the Bank of England purchased £10 billion of sterling corporate bonds via a series of auctions over 2016 and 2017. In particular, we use granular offer-level data from the CBPS auctions to construct proxy measures for the Bank of England’s demand for bonds and auction participants’ supply of bonds, allowing us to control for any reverse causality from liquidity to purchases. Across a wide range of transaction-based liquidity measures, we find that CBPS purchases improved the liquidity of purchased bonds.

Impact of Quantitative Easing on the Long-Term Investment Values

Presented here are simplified mathematical models for evaluation of the long-term investment values. Three scenarios were considered in a framework of the single product economy. The first scenario assesses an impact of capital investments (accrued on the product market with a constant acceleration) on an equity price on the equity market. The second scenario assesses impact of both capital investments (accrued on the product market with a constant acceleration) and quantitative easing (accrued on the equity market with a constant acceleration) on an equity price on the equity market. The third scenario assesses impact of both capital investments (accrued on the product market with a constant acceleration) and quantitative tightening (accrued on the equity market with a constant acceleration) on an equity price on the equity market.

The Impact of Quantitative Easing on Emerging Markets – Literature Review

Abstract The article presents the results of the review of the empirical literature regarding the impact of quantitative easing (QE) on emerging markets (EMs). The subject is of interest to policymakers and researchers due to the increasingly larger role of EMs in the world economy and the large-scale capital flows occurring after 2009. The review is conducted in a systematic manner and takes into consideration different methodological choices, samples and measurement issues. The paper puts the summarized results in the context of transmission channels identified in the literature. There are few distinct methodological approaches present in the literature. While there is a consensus regarding the direction of the impact of QE on EMs, its size and durability have not yet been assessed with sufficient precision. In addition, there are clear gaps in the empirical findings, not least related to relative underrepresentation of the CEE region (in particular, Poland).

The Effect of Quantitative Easing on Investment in the US and UK: An SVAR Approach

Following the collapse of Lehman Brothers in 2008, the Federal Reserve and the Bank of England implemented asset purchase programs to provide further liquidity to faltering markets, and to continue to place downward pressure on market interest rates. Later called Quantitative Easing, the higher asset prices and lower market yields induced by the purchases were expected to translate into lower market borrowing costs and increased investment. This project focused on estimating the effect of Quantitative Easing on real investment in the US and UK up to 2010. First, the historical relationship between bond yields and investment was estimated using a time series econometric model called a structural vector autoregression. Next, using the historical relationship between bond yields and investment, the impact of the asset purchases on investment was calculated using the bond yield changes induced by Quantitative Easing announcements. Deviations in bond yields on Quantitative Easing announcement dates suggested an impact on investment of 5.93% in the US, and an impact of 3.37% in the UK. Moreover, both the US and UK econometric results are statistically significant. Taking into account the econometric assumptions required to estimate the impact of Quantitative Easing on investment, the results in this project should be viewed with caution. However, the results will be useful in framing future thought on Quantitative Easing as a tool to provide macroeconomic stability

The Impact of Quantitative Easing on UK Bank Lending: Why Banks Do Not Lend to Businesses?

The growing proportion of UK bank lending to the financial sector reached a peak in 2007 just before the onset of the Global Financial Crisis (GFC). This marks a trend in the dwindling amount of bank lending to private sector non-financial corporations (PNFCs), which was exacerbated with the Great Recession. Many central banks aimed to revive bank lending with quantitative easing (QE) and unconventional monetary policy. We propose an agent based computational economics (ACE) model which combines the main factors in the economic environment of QE and Basel regulatory framework to analyse why UK banks do not prioritize lending to non-financial businesses. The lower bond yields caused by QE encourage big firms to substitute away from bank borrowing to bond issuance. In addition, the risk weight regime of Basel I/II on capital induces banks to favour mortgages over business loans to small and medium enterprises (SMEs). The combination of lower bond yields and Basel II/III capital requirements on banks, which, respectively, impact demand and supply of credit in the UK, plays a role in the drop of bank loans to businesses. The ACE model aims to reinstate policy regimes that form constraints and incentives for the behaviour of market participants to provide the causal factors in observed macro-economic phenomena.

Impact of Quantitative Easing on Purchased Asset Yields, its Persistency and Overlap

AbstractThe main focus of this paper rests on the event study and SVAR analysis of quantitative easing that was initiated as a reaction to the financial crisis at the turn of 2008/2009 that finally ended in 2014. The Fed was virtually unable to continue with its conventional monetary policy regime in environment of zero-bound threshold, where there is no easy way to decrease main monetary policy rate any further. As a reaction to this limitation, the Fed started to practice quantitative easing and other unconventional measures. Event study examines changes in yields of purchased assets, namely US Treasuries, MBS and agency debt, and on two-day event window of the OIS and yield spreads quantifies imminent impact of QE announcements and relevant chairman speeches. Following VAR model and impulse-response functions, I examine the impact of QE and its persistency on purchased asset and on alternative asset classes in the framework of various transmission channels such as signalling, portfolio-balancing and liquidity channels. In this study I found non-negligible impact of QE on purchased assets in both models through all waves of QE and time persistency patterns in IRFs part. Furthermore, some evidence for portfolio-balancing channel and other related channels was found.