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Quantitative easing impotence in the liquidity trap: Further evidence

Dimitris Kirikos ()

Economic Analysis and Policy, 2020, vol. 68, issue C, 151-162

Abstract: Quantitative easing (QE) ineffectiveness in periods of liquidity trap conditions has been empirically verified for Japan, USA, and the Eurozone, on the basis of a switching regimes approach. In this work, we present further evidence that unconventional monetary policies are impotent when policy rates are close to their lower bound, using monthly data from Sweden, Switzerland, and the UK, whose central banks also pursued QE policies in the aftermath of the 2008 financial crisis. For all the economies considered, we obtain evidence of drastic regime shifts for base money growth which are successfully captured by a Markov switching regimes representation, but inflation, investment expenditure growth, and broad money growth do not appear to change significantly in different QE policy regimes, thus pointing to unconventional monetary policy impotence.

Keywords: Quantitative easing; Liquidity trap; Zero lower bound; Switching regimes (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.eap.2020.09.004

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