Quantitative Easing Policy Research Articles

Global evidence of the COVID-19 shock on real equity prices and real exchange rates: A counterfactual analysis with a threshold-augmented GVAR model

In this study, we offer a global perspective on the impacts of the COVID-19 pandemic on financial markets using a multi-country Threshold-Augmented Global Vector Autoregressive Model of Chudik et al. (2020). We document a negative impact of the pandemic on real equity prices across countries (except the United States) and country groupings with the highest negative impact recorded in 2020Q2. The biggest losers are the emerging economies while the biggest gainers are the United States whose real stock prices remain positive and the Euro Area that achieved real exchange rate appreciation when the financial markets were mostly vulnerable. Our results support the effectiveness of the quantitative easing policy regime in the Euro Area during the COVID-19 pandemic and also suggest hedging role for the US stocks among other suggested safe assets.

Macroeconomic effects of EU Competition policy: A replication exercise

I estimate the macroeconomic impact of competition policy to deter collusion and merger control in the EU using a dynamic macroeconomic model as done by Dierx et al. I then estimate the impact of competition policy using another macroeconomic model that includes Central Bank quantitative easing policies [4]. When these are included the effects on GDP growth are higher.

Climate actions and macro-financial stability: The role of central banks

Limiting global warming to well below 2 °C may pose threats to macroeconomic and financial stability. In an estimated Euro Area New Keynesian model with financial frictions and climate policy, we study the possible perils of a low-carbon transition and evaluate the role of monetary policy and financial regulation. We show that, even for very ambitious climate targets, transition costs are moderate along a timely and gradual mitigation pathway. Inflation volatility strongly increases for disorderly climate policy, demanding a strong monetary response by central banks. In reaction to an adverse financial shock originating in the fossil sector, a green quantitative easing policy can provide an effective stimulus to the economy, but its stabilizing properties do not significantly differ from those of market neutral asset purchase programs. A financial regulation, encouraging the decarbonization of the banks’ balance sheets via ad hoc capital requirements, can significantly reduce the severity of a financial crisis, but prolongs the recovery phase. Our results suggest that the involvement of central banks in climate actions must be carefully designed to be in compliance with their mandate and to avoid unintended trade-offs.

Analysis of United States Quantitative Easing Policy on Real Output in Indonesia

This study discusses analysis of United States quantitative easing policy on real output in Indonesia. QE policy not only affects US economy but also influences the economic indicators of other countries, especially Indonesia countries with increasingly integrated market conditions. At present the Indonesia economy has been very open, so that policies originating from abroad can affect the country's economic conditions. The possibility of global spillover against non-conventional monetary policies such as QE. It is using the Vector Autoreggresion (VAR) methods to see the effect of QE policy. The data is time series for the 1999Q1-2016Q4. This study will analyze the impact of macroeconomic variables such as interest rates, money supply and inflation on GDP. The results of this study indicate that the implementation of the QE policy has an impact on the rate of GDP growth in each country of  Indonesia.

Quantitative easing, macroeconomic stability and economic policy effectiveness

PurposeThis study mathematically aims to evaluate the implications of a central bank’s adoption of a policy of quantitative easing (QE)/relative QE.Design/methodology/approachIt is shown, within an investment-savings (IS)-liquidity preference-money supply (LM) framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.FindingsFurthermore, it is shown here that the presence of QE increases the effectiveness of traditional discretionary monetary and fiscal policies.Originality/valueThe study shows, within an IS-LM framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.

Spillover Effects of US Unconventional Monetary Policy: (Evidence from Selected Asian Countries)

In this study, we evaluate the impact of US monetary policy between 2008 and 2018 (after implementation of quantitative easing policy) on assets, bonds, exchange rates of selected East Asian countries (Japan, South Korea, and Thailand). Our finding emphasized the significant role of US monetary policy on the East Asia financial markets especially in the case of South Korea. Results show that the US Treasury bill spread had the long run and US corporate spread had the short run effects on the asset markets of these countries. More specifically, sovereign yields respond significantly to US term spreads and stock prices respond largely to US corporate spread. The responses of exchange rate and house prices to US monetary policy are significant but attenuate.

Have the Purchases of ETF Raised Stock Prices? Recent Japanese Case

The Japanese central bank, the Bank of Japan (BOJ) has introduced a drastic and unprecedented quantitative easing (QE) policy to combat deflation from the 2000s. The BOJ has purchased exchange-traded funds (ETF) as well as huge amounts of domestic governments bonds. This paper investigates the effect of ETF purchases by the BOJ on Japanese stock prices. Empirical results show that the purchases were conducted to prevent decreasing stock prices, however, whether the purchases directly promoted stock prices rising or not is uncertain in the short-run. On the other hand, as stock prices have been increasing since then, the purchases made situations such as preventing a decrease to stock prices and promoting prices in the long-run.

Default and determinacy under quantitative easing

We show that the path of inflation under quantitative easing policies that target interest rates, is determinate in the presence of default. We achieve this through different payoff profiles that a collateralised defaultable bond achieves in different states of nature with distinct default outcomes. In the model, heterogeneous households trade this bond and other shorter maturity risk-free bonds to maximize their intertemporal utility of consumption and labour. The differentiated payoffs of the collateralised bond, in an equilibrium with active default, span the full state space giving determinacy of prices and inflation as an outcome. This, implies that quantitative easing as implemented by the ECB in the recent years, can control the stochastic path of inflation.

US quantitative easing and firm’s default risk: The role of Corporate Social Responsibility (CSR)

This study empirically investigates whether the US quantitative easing (QE) policy significantly mitigates a firm’s default risk by focusing on firms with differential levels of corporate social responsibility (CSR). Analyzing US firms’ data from 31,182 firm-year observations from 2000 to 2014, during QE implementation, we find that firms with better CSR performance showed a lower distance to default conditioning in extreme monetary expansion. Firms exhibited lower default risk during the US QE policy, but QE might generate adverse effects resulting from increased risk premiums and volatility for equities and low-grade corporate bonds, thereby increasing overall default probability. Our robustness tests not only considered various CSR dimensions and components but also used an alternative estimation method to improve the quality of default risk estimates.

Quantitative Easing In Overcoming the Crisis: Criticism ofQeinthe Monetary System Of Capitalism

This study aims to describe the form of Quantitative Easing applied by the Central Bank as well as qualitatively measure its benefits and excesses. To obtain a description and know the benefits and excesses in question, the research approach uses a qualitative approach by conducting a literature study of several facts and quantitative easing studies by Bank Indonesia and the Fed from various literature and media inductively relevant theories. This study's findings show that excesses can be detrimental to society, and countries that are shariah are harmful that should be avoided. This research is expected to encourage further research to determine the correlation of Quantitative Easing policy to the resolution of economic crisis and obtain alternative solutions by implementing the Islamic monetary system.
 The impact of the covid-19 pandemic that continues to this day causes economic shock, the slowing flow of goods commodities, decreased production, and decreased purchasing power of the community. Various policy efforts are carried out through fiscal stimulus as well as support through monetary policy in the form of quantitative easing.

International Spillover Effects of Quantitative Easing Policy: A Case Study on the U.S. and Japan

ABSTRACT This study analyses the influence of the changing nature of the U.S. quantitative easing (QE) policy’s international spillover on the Japanese economy following the global financial crisis. Based on existing studies, we construct a two-country vector autoregression model for the U.S. and Japan and estimate the time-varying parameters to comprehend the changing macroeconomic and financial structures of both countries. We not only confirmed the existence of spillover effects but also found significant changes in them over time. The spillover effects on Japan are larger for the real economy in the earlier phase and for financial markets in the later phase of the U.S. QE policy.

Purchase of government bonds by a supranational central bank: its impact on business cycles

The euro area emerged from the euro crisis without meeting the conditions presented by the theory of optimum currency area. The decisive policy that ended this crisis was the Outright Monetary Transactions policy. Besides, the quantitative easing policy supports the economy of the euro area after this crisis. To examine the impact of these supranational monetary policies on the business cycles in the euro area, which is not covered by optimum currency area theory, we use a Kaldorian two-country model featuring a monetary union and imperfect capital mobility. We find that an increase in government bond purchases is a stabilizing factor, whereas an extreme increase in the degree of counter-cyclical fiscal policy is a destabilizing factor. Nevertheless, as long as the fiscal and monetary policies of two countries are not extremely active, but active to a certain extent, the equilibrium point becomes locally stable. Furthermore, even if the business cycles are not synchronized, the purchase of government bonds of a particular country is effective in stabilizing the business cycles of both countries. From these results, we suggest that the euro area satisfies the metacriteria of an optimum currency area through the implementation of a government bond purchase system by a supranational central bank system.

The COVID-19 pandemic haunting the transmission of the quantitative easing to the exchange rate

The sudden spread of the COVID-19 pandemic disturbed the entire macroeconomic system and overturned the expectations of financial market participants and decision-makers. Using a TVP-BVAR-SV model, I investigate the transmission of the quantitative easing (QE) to the exchange rate and the business credit in the Eurozone during the pre-and post-COVID-19 outbreak. I find that the responses of the exchange rate EUR/USD to monetary policy shocks vary over time. In particular, I show that the QE policy does not generate the expected effect on the exchange rate during the COVID-19 pandemic period. The results imply that the unforeseen COVID-19 crisis has disturbed and modified investors’ behavior.

Does the ECB policy of quantitative easing impact environmental policy objectives?

ABSTRACT The relationship between the environment and climate change on one hand and the financial system, financial regulation and monetary policy on the other is growing in importance. This paper examines the possible impact of the European Central Bank’s monetary policy of quantitative easing on the environmental policy of the European Union. Using data from Climate Bonds Initiative, the paper analyses the variation in the amount of “green labelled bonds” issued in the individual member countries of the Eurozone areas, as a function of liquidity inducing monetary policy variables. The paper finds a positive and significant relationship between the two measures.

Analytical study of the implications of the quantitative easing policy on the investment climate - case studies of Japan and the United States of America –

Analytical study of the implications of the quantitative easing policy on the investment climate - case studies of Japan and the United States of America –

QUANTITATIVE EASING POLICY AND ITS IMPACT ON THE GLOBAL ECONOMY

Based on the analysis of the impact of quantitative easing policies on the global economy, there was concluded that the world’s largest central banks and widespread debt stimulation have created the model of economic growth. This model was based on the productivity growth. The lack of productivity growth in the developed world, the active integration of developing countries (first of all China and India) in the global economy have completely changed the directions of global financial flows and caused fundamental geopolitical changes.
 Striving to confront the cyclical nature of the economy, government regulators transform the global economy into a «zombie economy». There are unprofitable companies and banks, which operate on cheap money from central banks and government bailouts. The monetization of fiscal policy transforms the risks from governments to central banks and destroys their independence.
 We concluded that the strategy of tackling the global economy through cheap credit is doomed to failure because governments do not solve the problems of real economy, productivity increase, management of public and corporate debt, stagflation, unemployment, and increase in income differentiation.
 Nowadays, in the context of COVID-19 pandemic, central banks use the new and forgotten old tools to expand economic activity (so-called QE and «Not QE»). These tools provide the necessary stimulus only in the short-term period, but in the long term period it will inevitably lead to serious disparities, undermine the market mechanism, increase the administrative influence and lead the global economy to a choice between depression, unemployment, hyperinflation or systemic collapse.
 We believe that the global coronavirus pandemic stimulates the scientific debate on rethinking monetary policy goals and instruments, as the use of various «non-standard tools» has repeatedly proven ineffective in combating crises and it has helped only to create new global imbalances and crises.

Quantitative Easing Policy and Moral Hazard Behaviour of U.S. Banks

Quantitative Easing Policy and Moral Hazard Behaviour of U.S. Banks

The Demand for Money, Near-Money, and Treasury Bonds

Bank-created money, shadow-bank money, and Treasury bonds all satisfy investor's demand for a liquid transaction medium and safe store of value. We measure the quantity of these three forms of liquidity and their corresponding liquidity premium over a sample from 1926 to 2016. We empirically examine the links between these different assets, estimating the extent to which they are substitutes, and the amount of liquidity per-unit-of-asset delivered by each asset. We construct a new broad monetary aggregate based on our analysis and show that it helps resolves the money-demand instability and missing-money puzzles of the monetary economics literature. Our empirical results inform models of the monetary transmission mechanism running through shifts in asset supplies, such as quantitative easing policies. Our results on the substitutability of bank and shadow-bank money also inform analyses of the coexistence of the shadow-banking and regulated banking system.

Polityka abenomiki jako odpowiedź na problemy gospodarcze Japonii

The abenomics policy as an answer to Japan’s economic problems The aim of the article is to present the so-called Abenomics policy and its results with regards to the economic stagnation and chronic deflation which persisted in Japan since early 1990s. Created by the new Prime Minister of Japan Shinzo Abe and based on the reflationism theory, its goal was first and foremost to stop the deflation, but also reinvigorate demand and boost economic growth via means of structural reforms. These three objectives became known as the “three arrows” of the plan. The core of the program focused on the quantitative easing policy (QQE) led by the Bank of Japan, which consisted of massive purchase of bonds which would in turn raise their prices and inject money into the economy. Other measures included setting the goal of reaching 2% inflation in two years’ time, as well as enormous infrastructural investment and pension spending or numerous reforms regarding job market accessibility and deregulation. In the wake of the original plan’s middling results the Abenomics 2.0 plan was presented in 2014 and focused on Japan’s structural problems, which are rapidly aging population and shrinking workforce. Critical examination showed that these new goals concerning projected GDP level or fertility rate were unrealistic from the onset and did not amount to much. Despite the country leaving the long-lasting deflation behind, it did not reach the set 2% inflation mark or GDP growth on the level of comparable economies. Moreover, the debt level is still rising, partly because of the volume of the QQE policy. Adding to the situation is the recent economic crisis caused by the COVID-19 pandemic, which demanded a shift in government’s focus and caused all of the economic indicators to again worsen. Despite some successes along the way, the main goals of the Abenomics were unfulfilled during Shinzo Abe’s term of office, and Japan’s economic problems remain to be solved by the next governments.

Three Types of Economic Strategies in Japanese History

Japanese economy was ruined in the WWII, but grew quickly after this war. The strategies of Japanese government used to recover the economy are analyzed through reviewing the literature in this paper. The conclusions are as follows: after the war, Japanese government had applied various policies to help their economy to grow, although not all of them got the expected result. During 1950-1970, Japanese government carried out trade strategy, which can help Japan increase exports, learn from foreign countries, and improve their industry. From 1980s, Japanese government carried out science and technology strategy, which helped Japanese to create some improved versions of technologies based on knowledge they learned from foreigners before. And during 1985 to 1990, in order to remit the appreciation of yen (Japanese money), Japanese government applied a policy called “quantitative easing policy”, which increased the yen in circulation and thus helped yen to depreciate. The first two polices indeed boosted the economy, however the last policy had an negative effect on Japanese economy in the end. But generally speaking, these policies brought Japan to a higher economic level compared with several years before when the WWII ended.