School of Economics and Finance

No. 696: The Financial Market Impact of UK Quantitative Easing

Francis Breedon , Queen Mary, University of London
Jagjit S. Chadha , University of Kent and University of Cambridge
Alex Water , University of Kent

August 1, 2012

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After outlining some of the monetary developments associated with Quantitative Easing (QE), we measure the impact of the UK's initial 2009-10 QE Programme on bonds and other assets. First, we use a macro-finance 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 find that QE significantly lowered government bond yields through the portfolio balance channel - by around 50 or so basis points. We also uncover significant effects of individual operations but limited pass through to other assets.

J.E.L classification codes: E43, E44, E47, E58

Keywords:Term structure of interest rates, Monetary policy, Quantitative Easing