Friday, 18 October 2019: 2:00 PM
Central banks around the world executed large-scale asset purchase programs, Quantitative Easing (QE), to support domestic economic activity following the Global Financial Crisis (GFC). Starting in late 2008, the U.S. Federal Reserve System (the Fed) purchased mortgage-backed securities and U.S. Treasury debt over the course of three distinct rounds of QE. Across the Atlantic, the Bank of England (BOE) and the European Central Bank (ECB) conducted their own QE programs starting in early 2009. While the last round of Fed QE ended in October 2014, the BOE and the ECB implemented QE programs through 2016. Given the sheer size and unprecedented nature of these financial market interventions, it is of vital importance to determine whether these policies had any meaningful, empirical effect on credit markets, economic activity, inflation, and employment. Toward this goal, we use a qualitative vector auto regression (Qual-VAR) model to estimate the short- and medium-run response of the British and Eurozone economies to BOE and ECB QE policies. This approach was first developed by Dueker (2005) and later used by Meinusch and Tillman (2016) and Eiermann and Kazemi (2019) to estimate the effects of Fed QE on the U.S. economy. The QualVAR model is advantageous in that it allows us to endogenize a central bank’s decision to conduct QE using binary indicators within a standard VAR framework, and measure the central bank’s QE reaction function. Using monthly data, we find that BOE and ECB QE positively influenced employment, inflation, money growth, long-term interest rates, and stock prices, we find that QE in their respective domains. These results are robust to different specifications of the model.