Working Paper: CEPR ID: DP10495
Authors: Martin Weale; Tomasz Wieladek
Abstract: We examine the impact of large scale asset purchase announcements of government bonds on real GDP and the CPI in the United Kingdom and the United States with a Bayesian VAR, estimated on monthly data from 2009M3 to 2014M5. We identify an asset purchase announcement shock with four different identification schemes, always leaving the reactions of real GDP and CPI unrestricted, to test whether these variables react to asset purchases. We then explore the transmission channels of this policy. The results suggest that an asset purchase announcement of 1% of GDP leads to a statistically significant rise of .58% (.25%) and .62% (.32%) rise in real GDP and CPI for the US (UK). In the US, this policy is transmitted through the portfolio balance channel and a reduction in household uncertainty. In the UK, the policy seems to be mainly transmitted through the impact on investors? risk appetite and household uncertainty.
Keywords: Bayesian VAR; Unconventional Monetary Policy
JEL Codes: E50; E51; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Asset Purchase Announcement Shock (G34) | Increase in Real GDP (O49) |
| Asset Purchase Announcement Shock (G34) | Increase in CPI (E31) |
| Asset Purchase Announcement Shock (G34) | Increase in Real GDP (UK) (E20) |
| Asset Purchase Announcement Shock (G34) | Increase in CPI (UK) (E31) |
| Asset Purchase Announcement Shock (G34) | Portfolio Balance Channel (G11) |
| Asset Purchase Announcement Shock (G34) | Reduction in Household Uncertainty (US) (D19) |
| Asset Purchase Announcement Shock (G34) | Investors' Risk Appetite (UK) (G11) |
| Asset Purchase Announcement Shock (G34) | Household Uncertainty (UK) (D19) |