William A. Allen, Jagjit Chadha, Philip Turner, 23 October 2021

Martin Weale, Tomasz Wieladek, 24 September 2021

Quantitative easing is often criticised due to side effects on asset price valuation and risk taking. This column compares the financial side effects of conventional monetary policy to those of quantitative easing, based on the amount of inflation generated by each policy. A systematic comparison of multiple measures of financial side effects for the euro area, the UK, and the US suggests that the side effects of quantitative easing and conventional monetary policy are roughly the same.   

Lucrezia Reichlin, Giovanni Ricco, Matthieu Tarbé, 05 August 2021

Monetary policy has fiscal implications since its effect on interest rates, inflation and output relaxes or tightens the general government inter-temporal budget constraint. Inflation dynamics is the result of both monetary policy and the fiscal response to it via the adjustment of the primary deficit. This column discusses estimates of the fiscal responses to monetary policy in the euro area. It shows that the more modest impact of unconventional monetary policy easing on inflation, if compared with the impact of conventional easing, can be explained by a more modest increase in the primary deficit in the former case.

Stephen Cecchetti, Paul Tucker, 01 June 2021

Since the Global Crisis, the size of central bank balance sheets has grown significantly. Traditional goals of price and financial stability are insufficient for assessing the success of modern central banking operations. This column introduces a new framework for categorising and understanding central bank balance sheet operations. Monetary policy decisions are separated from facilities for lender of last resort, market maker of last resort, providing selective credit, and ensuring emergency government financing. To maintain legitimacy and accountability, central banks should formally distinguish these operations by clearly setting out their purposes, objectives, and constraints. 

Yasin Mimir, Enes Sunel, 05 April 2021

Central banks in emerging economies deployed asset purchases for the first time to respond to the Covid-19 shock. Initial studies have found quantitative easing reduced long-term bond yields in these economies without creating bouts of currency depreciation. This column argues that asset purchases ease financial conditions in emerging economies by curbing capital outflows enabled by stronger bank balance sheets upon the asset intermediation by the central bank. If asset purchases cause a de-anchoring in inflation expectations, their effectiveness diminishes. Counterfactual policy experiments reveal that bond yield reductions from asset purchases during the pandemic could have persisted only under large-sized programmes that are representative of advanced economies.

Joost Bats, Massimo Giuliodori, Aerdt Houben, 17 November 2020

Interest rates have declined steadily over the last decades, recently turning negative in Europe and Japan. This column finds that negative interest rates have important implications for bank stock prices. When market interest rates are negative, but deposit rates are stuck at zero, monetary policy instruments that target the longer end of the yield curve are less detrimental to bank performance compared with instruments that target the shorter end. Therefore, quantitative easing and yield curve control deserve special consideration when interest rates are negative and further monetary accommodation is required. 

Luca Dedola, Georgios Georgiadis, Johannes Gräb, Arnaud Mehl, 21 October 2020

Since the onset of the Global Crisis in 2008, central banks around the world have rolled out a broad array of quantitative easing measures, resulting in dramatic expansions of their balance sheets. This column reveals that that these policies have had large and persistent effects on the dollar/euro exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance also affect the response of the dollar/euro exchange rate to quantitative easing.

Elisabeth Kempf, Lubos Pastor, 05 October 2020

The effectiveness of central banks’ asset purchase programmes (‘quantitative easing’) has been a subject of intense debate in both academic and policy circles. Much of the analysis is conducted by the staff of central banks themselves, which is not unlike pharmaceutical firms evaluating their own drugs. Indeed, as this column shows, papers by central bank researchers in the US, the UK, and the euro area report systematically larger effects of unconventional monetary policy on output and inflation than papers by independent academics. This is not to argue that central bank research should be discounted or to question its credibility – but it does highlight a previously unexplored conflict of interest.

Gregor Boehl, Gavin Goy, Felix Strobel, 30 August 2020

Despite their pivotal role, the macroeconomic effects of large-scale asset purchases, known as quantitative easing, remain open to debate. This column provides insights from a structural investigation of the macroeconomic effects of the Federal Reserve’s quantitative easing programme during the global financial crisis. In line with the general consensus, the results suggest that asset purchases substantially eased borrowing conditions and facilitated new investment. The rise in investment led to an increase in the productive capacity which, in turn, lowered firms’ marginal cost. These supply-side effects dominated demand-side effects in determining the response of inflation, leading to a mild disinflationary effect.

Alex Cukierman, 27 July 2020

The use of helicopter money as a monetary policy response to Covid-19 has drawn significant attention over recent months. This column offers a comparison of helicopter money and quantitative easing, as used in the wake of the global financial crisis. By evaluating the similarities and differences, as well as the contrasting contexts of each crisis, key advantages and disadvantages are identified. It concludes that the two policy mechanisms may not be as different as first thought, and helicopter money could well be crucial in combating the economic effects of COVID-19. 

Gianluca Benigno, Jon Hartley, Alicia García-Herrero, Alessandro Rebucci, Elina Ribakova, 29 June 2020

Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimising the risks of large depreciations and spiralling inflation. 

Marcin Kolasa, Grzegorz Wesołowski, 01 May 2020

Several major central banks announced new rounds of massive asset purchases following the outbreak of the Covid-19 pandemic. This policy instrument seems to have performed well for economies that have been implementing it since the Global Crisis, but its spillover impact on external countries has remained a bone of contention within the policy debate. Using previous episodes of quantitative easing as a guideline, this column analyses its international spillovers, showing that they are qualitatively and quantitatively different from the impact of changing short-term rates by the major central banks.

David Miles, 30 March 2020

In response to the current economic crisis, central banks have embarked on operations to purchase huge quantities of government bonds. Accusations that these policies amount to ‘printing money’ or ‘helicopter drops’ are unfounded and misleading. This column argues that the asset purchase operations undertaken when interest rates are very low can help greatly in stabilising the economy. These actions allow governments to issue long-term bonds, incur low effective costs in the near horizon, and avoid volatile financial markets. 

Charles Goodhart, Geoffrey Wood, 24 January 2020

Ralf Fendel, Nicola Mai, Oliver Mohr, 17 January 2019

The flattening of the US yield curve has left academics, central bankers and market commentators divided, with one camp interpreting it as a sign of impending recession (in line with historical patterns), and the other camp arguing that this time is different given unprecedented changes in monetary policy and other structural forces. This column argues that the ECB’s quantitative easing programme undermined the performance of term spreads as predictors of recessions. It suggests and tests a modified term spread and several other variables that are more successful at predicting recessions. 

Sayuri Shirai, 16 October 2018

The Bank of Japan has bought massive quantities of Japanese stocks in a bid to increase aggregate demand and inflation, and to encourage Japanese savers to take on more risk. This column surveys the effectiveness of this quantitative easing programme and identifies several key issues, including stock prices not rising in proportion to profits, the overvaluation of some small-cap stocks, and adverse impacts on corporate governance. It argues that before taking any steps toward monetary policy normalisation, the Bank of Japan should introduce flexibility in interpreting the 2% price stability target.

James Hamilton, 12 October 2018

Quantitative easing policies have been used widely over the past decade. This column explores how markets responded to the announcements surrounding the three phases of the Fed’s quantitative easing operations. It also discusses a basic identification problem with high-frequency event studies, namely, that they cannot resolve whether the announcement mattered because it conveyed information about monetary policy or about economic fundamentals. 

Miguel Ampudia, Dimitris Georgarakos, Michele Lenza, Jiri Slacalek, Oreste Tristani, Philip Vermeulen, Gianluca Violante, 14 August 2018

Quantitative easing has recently been shown to affect households differently depending on the composition of their income and wealth. Using euro area data, this column reviews the relevance of the direct and indirect effects of monetary policy on households’ incomes, which varies depending on employment status. The indirect income channel is found to be quantitatively more powerful, and especially beneficial for households holding few or no liquid assets. This implies that expansionary monetary policy in the euro area has led to a reduction in inequality. 

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