How persistent are unconventional monetary policy effects?

Quantitative easing effectiveness: Evidence from Euro private assets

“…Indeed, studies across the spectrum of empirical methodologies rather converge to findings of transient QE effects that work mainly through portfolio rebalancing after asset supply shocks. In this work, we have obtained evidence that the same appears to be the case when QE is evaluated on the grounds of asset yield predictability, even though a relatively similar previous approach (Neely, 2022) pointed to the contrary. It seems that information on the evolution of policy instruments can help investors predict future risk premia and, thus, rebalance their portfolios accordingly whenever they perceive the monetary policy stance as temporary.…”

“…In other words, if QE asset purchases are perceived as temporary, then expectations of future asset price changes would induce agents to form strategies that offset QE effects on long-term yields. Along this line, Neely (2022) reported evidence that structural time series specifications do not outperform a naive random walk model in forecasting long-term asset yields out of sample and; therefore, there is no exploitable information in QE actions that could help agents predict future asset prices. However, Kirikos (2022aKirikos ( , 2022b) refuted this finding using a much larger dataset on 10-year sovereign bond yields from six advanced economies that have pursued QE after the great financial crisis of 2008.…”

“…Theoretically, both possibilities are supported since the preferred-habitat approach of Vayanos and Vila (2021) suggests that when investors have preferences for assets with specific maturities, then asset demand shocks produce lasting portfolio effects, whereas the intertemporal equilibrium model of Eggertsson and Woodford (2003) shows that the expansion of the monetary base via QE has only a transitory effect on asset yields and aggregate expenditure. In recent work, Cebula and Rossi (2022) have shown that that QE increases discretionary policy multipliers in the context of an IS-LM model, and Bhattarai and Neely (2022) suggested that there is a theoretical base for QE but recommend its use only in exceptional circumstances of a liquidity trap. Also, Karadi and Nakov (2021) used a new-Keynesian setup and showed that QE can offset large financial disturbances but may be ineffective as a response to nonfinancial shocks at the lower bound of the interest rate.…”