Lyonnet, Victor and Werner, Richard A.
Lessons from the Bank of England on 'quantitative easing' and other 'unconventional' monetary policies
[in special issue: Banking and the Economy]
International Review of Financial Analysis, 25, . (doi:10.1016/j.irfa.2012.08.001).
- Author's Original
Restricted to Repository staff only
This paper investigates the effectiveness of the ‘quantitative easing’ policy, as officially implemented by the Bank of England since March 2009. A policy of the same name had previously been implemented in Japan, which serves as a reference. While the majority of the previous literature has measured the effectiveness of QE by its impact on interest rates, in this paper the effectiveness of all Bank of England policies, including QE, is measured by their impact on the declared goal of the QE policy, namely nominal GDP growth. Further, unlike other works on policy evaluation, in this paper we use the general-to-specific econometric modelling methodology (a.k.a. the ‘Hendry’ or ‘LSE’ methodology) in order to determine the relative importance of Bank of England policies, including QE. 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’ as defined in the original sense of the term (Werner, 1995c) is supported by empirical evidence: a stable relationship between a lending aggregate (disaggregated M4 lending, singling out bank credit for GDP transactions) and nominal GDP is found. The findings imply that the central bank should more directly target the growth of bank credit for GDP-transactions, which was still contracting in late 2011. A number of measures exist to boost it, but they have hitherto not been taken.
|Digital Object Identifier (DOI):
||central banking, credit creation, general-to-specific methodology, intermediate targets, monetary policy, operating tools, qualitative easing, quantitative easing, qe, zero bound
||Southampton Business School
|20 August 2012||e-pub ahead of print|
||26 Nov 2012 11:20
||17 Apr 2017 16:21
|Further Information:||Google Scholar|
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