Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. bonds and other assets. First, we use a macro-…nance yield curve both to create a counterfactual path for bond yields and to estimate the impact of QE directly. Second, we analyse the impact of individual QE operations on a range of asset prices. We …nd that QE signi…cantly lowered government bond yields through the portfolio balance channel -by around 50 or so basis points. We also uncover signi…cant e¤ects of individual operations but limited pass through to other assets. Terms of use: Documents in EconStor mayJEL Classi…cations: E43, E44, E47, E58

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Lucas has recently suggested that the`shoe-leather' costs of in¯ation may amount to as much as 1% of GNP in the United States when moving to the Friedman optimum. We assess his thesis using empirical evidence for the United Kingdom over the period 1870±1994. We ®nd support for Lucas' proposition -that interest rates should be speci®ed in logs -as a description of money demand dynamics, but not as a steady-state characterisation. Although Lucas' estimates can be corroborated, a semilog interest rate speci®cation implies smaller, though still tangible, welfare gain estimates: for example, 0.22% of GNP in perpetuity when moving from 6% to 2% nominal interest rates.Capturing the welfare costs of in¯ation has, on the whole, proved an elusive task for economists. But perhaps the area of least uncertainty surrounds the socalled`shoe-leather' costs of in¯ation -the increased time and cost of making trips to the bank to replenish money balances whenever in¯ation increases. Since Bailey (1956), it has been customary to measure these`shoe-leather' costs as the trapezoid of unsatis®ed demand beneath a money demand schedule, which is foregone at any non-zero nominal interest rate. There is also a common perception that, so-measured, shoe-leather costs are relatively trivial in macroeconomic terms.Certainly, such a conclusion seems robust at the levels of in¯ation currently prevailing within developed economies. For example, Fischer (1981) and McCallum (1989) both estimate that the shoe-leather bene®t from a 10% point reduction in in¯ation is around 0.3% of GNP. But in today's low-in¯ation environment, a reduction in in¯ation of around 2% points seems more apposite. Using the above calculus, such a reduction would deliver a welfare gain of only around 0.06% of GNP -a small number by most people's reckoning. Indeed, a recent study by Feldstein (1995) concludes that the shoeleather savings from a move from 2% to zero in¯ation could well be negative once the indirect effect on seigniorage revenues is taken into account -a point ®rst raised by Phelps (1973). 1 That academic view chimes with anecdotal evidence. A recent survey by Shiller (1996) posed the question`Why do people dislike in¯ation?' Among the general public, there was no mention of the extra time and cost expended by agents replenishing their money balances at high rates of in¯ation. There was, as you might expect, a greater recognition of these costs among econothe comments of two anonymous referees helped materially improve the paper. Martin Cleaves, Bruce Devile, Siobhan Phillips and Jenny Salvage provided valuable research assistance. Of course, any remaining errors and omissions are ours. The views expressed within are not necessarily those of the Bank of England.1 Feldstein (1995) ®nds much larger distortions from in¯ation arising from the imperfect indexation of the United States tax system -amounting perhaps to as much as 1% of GNP in perpetuity. That leads him to argue strongly for a zero in¯ation target.

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Monetary authorities often seem reluctant to discuss the conduct of monetary policy. There is a concern that greater openness in monetary policy-making may lead to volatility in financial markets, and specifically in interest rates. However, to date there is very little direct empirical evidence but recent changes in the monetary policy framework of the UK provide an opportunity to gain some insight on this issue. First, we present a model of monetary policy showing that volatility that would other wise occur to aggregate prices is transmitted to the rate of interest in a tightly specified nominal regime. Under some circumstances information flows may add to volatility; if volatility is harmful then central bankers may be right to be reticent. However, the evidence suggests that even though volatility has indeed risen in the recent past, there is no evidence that this volatility is directly attributable to increased information flows per se.

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