Unconventional monetary policies and the macroeconomy: the impact of the UK's QE2 and funding for lending scheme

Churm, Rohan, Joyce, Michale, Kapetanios, George and Theodoridis, Konstantinos ORCID: https://orcid.org/0000-0002-4039-3895 2021. Unconventional monetary policies and the macroeconomy: the impact of the UK's QE2 and funding for lending scheme. The Quarterly Review of Economics and Finance 80 , pp. 721-736. 10.1016/j.qref.2018.10.004

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Abstract

In this paper we assess the macroeconomic effects of two of the flagship unconventional monetary policies used by the Bank of England during the later stages of the global economic crisis: additional Quantitative Easing (QE) and the introduction of the Funding for Lending Scheme (FLS). We argue that these policies can be seen as complements, as QE effectively bypasses the banks by attempting to reduce risk-free yields directly in order to have a wider effect on asset prices, while FLS operates directly through banks by reducing their funding costs and increasing incentives to lend. We attempt to quantify the effects of these policies by estimating their impact on long-term interest rates and bank funding costs, respectively, and then tracing out their wider effects on the macroeconomy using simulations from a large Bayesian vector autoregression (VAR), which are cross-checked with a simpler Auto-regressive distributed lag (ARDL) approach. We find that the second round of the Bank's QE purchases during 2011-12 and the initial phase of the FLS each boosted GDP in the UK by around 0.5%-0.8%. Their effect on inflation was also broadly positive reaching around 0.6 pp, at its peak.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Advanced Research Computing @ Cardiff (ARCCA) Business (Including Economics)
Publisher:	Elsevier
ISSN:	1062-9769
Date of First Compliant Deposit:	29 October 2018
Date of Acceptance:	9 October 2018
Last Modified:	10 Nov 2024 00:30
URI:	https://orca.cardiff.ac.uk/id/eprint/116167

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