Quantitative Easing During the COVID-19 Pandemic: A Cross-Country Study

Maciej Stefański

No 2023-088, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: This paper estimates the financial market and macroeconomic effects of central bank asset purchases (quantitative easing, QE) in 16 economies which have launched asset purchases for the first time in response to the COVID-19 pandemic. We opt for regression-based methods rather than event studies, which enable us to estimate the effects of QE on government bond yields and stock prices over the first year of the pandemic rather than only at the time of the programme announcement. These estimates are inputted into Bayesian vector autoregressive models using Structural Scenario Analysis to obtain the effects on GDP and inflation. Contrary to most of the previous literature, we find that QE has a strong and robust impact on stock prices (raising them by 40% on average), but only a muted and on average neutral impact on bond yields. This translates into usually positive, but rather muted and often statistically insignificant impact on GDP of 0.4% on average and an insignificant impact on prices. Analysing the cross-country differences in the results we find that QE tends to be more effective in countries with more credible monetary and fiscal policies, which suggests that it is a useful tool primarily in advanced economies.

Keywords: unconventional monetary policy; large-scale asset purchases; QE; GDP; inflation; stock prices; government bond yields; credibility; comparative study (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 81 pages
Date: 2023-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2023088

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