The impact of corporate QE on liquidity: evidence from the UK

56 Pages Posted: 4 Mar 2019 Last revised: 24 Jul 2020

See all articles by Lena Boneva

Lena Boneva

Bank of England

David Elliott

Bank of England

Iryna Kaminska

Bank of England

Oliver B. Linton

University of Cambridge

Nick McLaren

Bank of England

Ben Morley

Bank of England

Date Written: March 1, 2019

Abstract

Quantitative easing (QE) has become a key component of the monetary policy toolkit since the global financial crisis. However substantial uncertainty remains about the impact of QE on market liquidity. Identifying the impact is particularly challenging due to the potential for reverse causality, because liquidity considerations might affect purchases. To address this challenge, we study the Bank of England’s Corporate Bond Purchase Scheme (CBPS), in which the Bank of England purchased £10 billion of sterling corporate bonds via a series of auctions over 2016 and 2017. In particular, we use granular offer-level data from the CBPS auctions to construct proxy measures for the Bank of England’s demand for bonds and auction participants’ supply of bonds, allowing us to control for any reverse causality from liquidity to purchases. Across a wide range of transaction-based liquidity measures, we find that CBPS purchases improved the liquidity of purchased bonds.

Keywords: quantitative easing, market liquidity, market-making, corporate bonds

JEL Classification: G12, G23, E52, E58

Suggested Citation

Boneva, Lena and Elliott, David and Kaminska, Iryna and Linton, Oliver B. and McLaren, Nick and Morley, Ben, The impact of corporate QE on liquidity: evidence from the UK (March 1, 2019). Bank of England Working Paper No. 782, Available at SSRN: https://ssrn.com/abstract=3346331 or http://dx.doi.org/10.2139/ssrn.3346331

Lena Boneva (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

David Elliott

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Iryna Kaminska

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Oliver B. Linton

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

Nick McLaren

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Ben Morley

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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