Assessing the Economy-Wide Effects of Quantitative Easing

45 Pages Posted: 27 Jan 2012

See all articles by George Kapetanios

George Kapetanios

King's College, London

Haroon Mumtaz

University of London - School of Sciences

Ibrahim Stevens

Bank of England

Konstantinos Theodoridis

Cardiff University

Multiple version iconThere are 2 versions of this paper

Date Written: January 27, 2012


This paper examines the macroeconomic impact of the first round of quantitative easing (QE) by the Bank of England which started in March 2009. Although Bank Rate, the UK policy rate, was reduced to ½%, effectively its lower bound, the Bank’s Monetary Policy Committee felt that additional measures were necessary to meet the inflation target in the medium term. The policy of QE entailed buying private and mainly public assets in large quantities using central bank money, with the aim of injecting money into the economy and boosting nominal spending, in order to help achieve the Bank’s inflation target. Over the period from March 2009 to January 2010, the Bank of England purchased £200 billion of assets, mainly consisting of government securities. We attempt to quantify the effects of these purchases by focusing on the impact of lower long-term interest rates on the wider economy. This is motivated by empirical evidence indicating that QE purchases reduced long-term UK government bond yields by about 100 basis points. Other transmission channels are also possible, but are not considered in this paper. We use three different models to conduct counterfactual simulations to estimate the impact of QE on output and inflation: a large Bayesian VAR; a change-point structural VAR; and a time-varying parameter VAR. Our preferred average estimates from the three models suggest that QE may have had a peak effect on the level of real GDP of around 1½% and a peak effect on annual CPI inflation of about 1¼ percentage points. These estimates are shown to vary considerably across the different model specifications, and with the precise assumptions made to generate the counterfactual simulations, and are therefore subject to considerable uncertainty.

Keywords: Bayesian methods, large-scale asset purchases, quantitative easing, vector autoregressions

JEL Classification: C11, C32, E52, E58

Suggested Citation

Kapetanios, George and Mumtaz, Haroon and Stevens, Ibrahim and Theodoridis, Konstantinos, Assessing the Economy-Wide Effects of Quantitative Easing (January 27, 2012). Bank of England Working Paper No. 443. Available at SSRN: or

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Haroon Mumtaz

University of London - School of Sciences ( email )

London, WC1E 7HX
United Kingdom

Ibrahim Stevens (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Konstantinos Theodoridis

Cardiff University ( email )

Aberconway Building
Colum Drive
Cardiff, Wales CF10 3EU
United Kingdom

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