The Impact of Corporate QE on Liquidity: Evidence from the UK

Abstract

There is substantial uncertainty about the impact of quantitative easing (QE) on market liquidity. Identifying the impact is particularly challenging due to the potential for reverse causality, because liquidity considerations might affect QE purchases. We address this challenge by studying the Bank of England’s 2016-17 Corporate Bond Purchase Scheme (CBPS). In particular, we use granular offer-level data from the CBPS auctions to construct proxy measures for the BoE’s demand for bonds and auction participants’ supply of bonds, allowing us to control for any reverse causality from liquidity to purchases. We find that CBPS purchases improved the liquidity of purchased bonds.