The Impact of QE on Liquidity: Evidence from the UK Corporate Bond Purchase Scheme

48 Pages Posted: 4 Mar 2019

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

In August 2016, the Bank of England (BoE) announced a Corporate Bond Purchase Scheme (CBPS) to purchase up to £10 billion of sterling corporate bonds. To investigate the impact of these purchases on liquidity, we create a novel dataset that combines transaction-level data from the secondary corporate bond market with proprietary offer-level data from the BoE’s CBPS auctions. Identifying the impact of central bank asset purchases on liquidity is potentially impacted by reverse causality, because liquidity considerations might impact purchases. But the offer-level data allow us to construct proxy measures for the BoE’s demand for bonds and auction participants’ supply of bonds, meaning that we can control for the impact of liquidity on purchases. Across a range of 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 QE on Liquidity: Evidence from the UK Corporate Bond Purchase Scheme (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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