The Financial Market Impact of UK Quantitative Easing

Abstract

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The Transmission of Unconventional Monetary Policy in UK Government Debt Markets

“…Our core result was robust to all of these and so the results presented were chosen for their intuition and parsimonious nature. 7 Event studies such as Caglar et al (2015) find this channel to be weak, but are limited in their methodology to a narrow window across which expectations might change, whereas in practice expectations may adapt significantly in advance of policy announcements if they are anticipated. 8 Estimates of the impact of QE in the United Kingdom in the existing literature vary between 20 and 150 basis points.…”

Applying a macro-finance yield curve to UK quantitative Easing

“…For in ‡ation we use the one-year ahead median in ‡ation forecast from HM Treasury's survey. 11 For real activity we use a real activity index. For policy we include the Bank rate and for a measure of …scal policy we use debt-to-GDP expressed as a percentage.…”

“…The estimates for the forwards are derived from a cubic spline based technique. 11 We refer the reader to "Forecasts for the UK Economy: a comparison of independent forecasts"for more information. This publication is available monthly from HM Treasury at the following website:…”

“…Examples of the event study include Meier (2009) (2010) to estimate the portfolio balance e¤ect of Gilt purchases on the yield curve. A related analysis to ours is undertaken by Breedon et al (2012) who examine the impact of debt purchases on both monthly and daily bond yields over the same period as well as duration e¤ects of the changing nominal bond portfolio brought about by large scale asset purchases. They found that the portfolio e¤ect was likely to reduce yields somewhere between 30 to 90 basis points.…”

“…This paper builds on the approach of Breedon et al (2012), who analyse the e¤ects that the …rst round of QE had on the nominal UK term structure. We develop a more detailed methodology and extend our analysis to include the real term structure of interest rates, as well as o¤ering a decomposition of the impact of QE on the term structure based on the portfolio balance, liquidity and signalling e¤ects.…”