Are the effects of quantitative easing and tightening state contingent?

Michael Ellington, Costas Milas and Ryland Thomas
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Michael Ellington: University of Liverpool Management School
Costas Milas: University of Liverpool Management School
Ryland Thomas: Bank of England

No 1185, Bank of England Staff Working Paper series from Bank of England

Abstract: We provide evidence that quantitative easing (QE) and quantitative tightening (QT) policies are state contingent. Using 60 years of UK data on public-sector debt sales to the banking system we identify a novel bank funding shock that indicates the impact of unconventional monetary policies changes significantly over time, and that regimes are non-recurrent. Our approach also permits an appraisal of state contingency at different stages of transmission. Over successive QE rounds, we find the responsiveness of government bond yields to a given amount of QE falls. However, demand becomes more responsive to yield changes, while inflation exhibits more persistence and greater sensitivity to the output gap. In the presence of such state contingencies, our results suggest careful monitoring is needed when assessing the impact of QE policies.

Keywords: Quantitative easing; quantitative tightening; unconventional monetary policy; bank funding; vector autoregression (search for similar items in EconPapers)
JEL-codes: C11 C32 E52 E58 (search for similar items in EconPapers)
Pages: 96
Date: 2026-05-29
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:023307

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