Did Quantitative Easing Only Inflate Stock Prices? Macroeconomic Evidence from the US and UK

Balatti, Mirco; Brooks, Chris; Clements, Michael P.; Kappou, Konstantina

doi:10.2139/ssrn.2838128

Cited by 7 publications

(4 citation statements)

References 48 publications

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“…Our analysis also reveals that UMP actions boost the stock market as indicated by its positive and significant response. This finding is in accordance with related evidence in the field (Balatti, Brooks, Clements, & Kappou, 2016) who find a positive response of equity prices to QE shocks. Last, UMP shocks lead to a gradual and persistent positive effect on bank lending.…”

Section: Bayesian Varsupporting

confidence: 93%

The impact of unconventional monetary policy in the euro area. Structural and scenario analysis from a Bayesian VAR

Evgenidis

Papadamou

2020

Int. J Fin Econ

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This paper employs a medium scale Bayesian VAR model to provide a rich picture of the transmission of unconventional monetary policy (UMP) shocks in various dimensions of the economy, and to shed light on the appropriate policy mix that the central bank could adopt to fulfil its price stability mandate. We show that UMP shocks have a significant positive impact on both economic activity and inflation; stem financial market stress episodes and boost economic sentiment. Additionally, several channels seem to have been activated, including the exchange rate, inflation expectations and the bank lending channel. Counterfactual policy analysis suggests that a policy mix that combines the use of permanently negative interest rates with a balance sheet expansion at a steady pace over a long period, could bring inflation closer to the target. Alternative policy scenarios that, either give more weight on the purchases during the first months or, terminate asset purchases too early, would fail to keep inflation on track to meet its target.

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Section: Bayesian Varsupporting

confidence: 93%

The impact of unconventional monetary policy in the euro area. Structural and scenario analysis from a Bayesian VAR

Evgenidis

Papadamou

2020

Int. J Fin Econ

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“…Moreover, the considered news -regardless of whether they are common or country-specific -decrease correlation between distressed economies and Germany, whereas they increase that between distressed countries. Finally, Balatti et al (2016) find an inverted V shaped effect: initially the impact of US and UK QE programmes on volatility is positive and becomes negative after five months, on average. According to them, this indicates a spike in market volatility on days immediately following the announcement, while in the long run there would be a quiet period probably because of lower price movements deriving by the QE implementation.…”

Section: Introductionmentioning

confidence: 84%

Measuring the Effects of Unconventional Policies on Stock Market Volatility

2020

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As a response to the Great Recession, many central banks resorted to unconventional monetary policies, in the form of a balance sheet expansion. Our research aims at analyzing the impact of the ECB policies on stock market volatility in four Eurozone countries (France, Germany, Italy and Spain) within the Multiplicative Error Model framework. We propose a model which allows us to quantify the part of market volatility depending directly on unconventional policies by distinguishing between the announcement the implementation effects. While we observe an increase in volatility on announcement days, we find a negative implementation effect, which causes a remarkable reduction in volatility in the long term. A Model Confidence Set approach finds how the forecasting power of the proxy improves significantly after the policy announcement; a multi-step ahead forecasting exercise estimates the duration of the effect, and, by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt-troubled countries.

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“…Evidence in Villanueva (2015) draws a similar conclusion for the effects of QE on US stocks. By contrast, Ballati et al (2016) suggest that the effects on equity prices are stronger and the pass-through to the economy insignificant. Barbon and Gianinazzi (2017) report a significant increase in Japanese equity prices in response to the purchase of ETFs by the Bank of Japan after 2013.…”

Section: Accepted Manuscriptmentioning

confidence: 91%

The effect of quantitative easing on the variance and covariance of the UK and US equity markets

Shogbuyi

Steeley

2017

International Review of Financial Analysis

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Please cite this article as: Abiodun Shogbuyi, James M. Steeley , The effect of quantitative easing on the variance and covariance of the UK and US equity markets, International Review of Financial Analysis (2016), ABSTRACTWe examine the impact on the variance-covariance structure of UK and US equity markets of the Quantitative Easing (QE) operations implemented by the Bank of England (BoE) and the Federal Reserve (Fed). While the theory of portfolio balance suggests that QE operations could affect markets other than those in which the operations occur, prior analysis of these other markets is scarce. We find that while QE operations in general reduced equity volatility, day to day operations generated spikes in volatility in UK equities. We also find that BoE operations increased the covariance between the UK and US equity markets.

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Did Quantitative Easing Only Inflate Stock Prices? Macroeconomic Evidence from the US and UK

Cited by 7 publications

References 48 publications

The impact of unconventional monetary policy in the euro area. Structural and scenario analysis from a Bayesian VAR

The impact of unconventional monetary policy in the euro area. Structural and scenario analysis from a Bayesian VAR

Measuring the Effects of Unconventional Policies on Stock Market Volatility

The effect of quantitative easing on the variance and covariance of the UK and US equity markets

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