Working Paper: CEPR ID: DP16395
Authors: Tomasz Wieladek; M Weale
Abstract: We explore the size of financial ‘side effects’ of QE relative to those of conventional monetary policy for the Euro Area, UK and US. Following previous work for conventional monetary policy we examine the effects on private credit imbalances, financial market risk and asset valuation. We adopt an agnostic Bayesian VAR approach, identifying QE and conventional monetary policy shocks with four different identification schemes and two different measures of unconventional monetary policy. We compare the size of each side effect by the amount of inflation generated by each policy, as all three of these central banks were targeting inflation during this time. The relative size of these effects is at the heart of the current debate about the financial stability and wealth inequality consequences of accommodative monetary policy. While both, conventional monetary policy and QE, generate some financial ‘side effects’, there is no statistical evidence that the effect of QE on these variables is consistently larger than the effect of conventional monetary policy.
Keywords: QE; Monetary Policy; Risktaking Channel of 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 |
|---|---|
| QE (E01) | private credit imbalances (F65) |
| conventional monetary policy (E52) | private credit imbalances (F65) |
| QE (E01) | financial market risk spreads (G19) |
| conventional monetary policy (E52) | financial market risk spreads (G19) |
| QE (E01) | asset prices (G19) |
| conventional monetary policy (E52) | asset prices (G19) |
| short-term interest rate (E43) | private credit to firms (G21) |
| short-term interest rate (E43) | EMBIG spread (Y60) |