Daily Management Review

BIS: the QE effect wanes with time


12/28/2017


The Bank for International Settlements (BIS) found that the effect of injecting money into the economy through the purchase of securities by central banks is weakening over time, Bloomberg writes.



Such a conclusion is contained in the working report of the BIS prepared by Henning Hesse, Boris Hofmann, James Weber. Experts compared the effect of buying up assets in the United States and Great Britain in the period from 2008 to the middle of 2011 with the effect of QE at a later time. Earlier actions have significantly helped the economy, but subsequent measures have had little or no effect.

This issue is important for central banks, which are developing exit strategies from stimulus programs introduced after the global financial crisis.

Earlier it was reported that the European Central Bank (ECB) in October decided to reduce the volume of monthly purchases of bonds, but has not yet determined a specific date for the completion of QE. Meanwhile, the US Federal Reserve System (FRS) is gradually reducing its balance.

The weakening of the impact of quantitative easing can be explained by the fact that investors are increasingly pricing in purchase of bonds by central banks before actually announcing it, the BIS report says.

After the collapse of Lehman Brothers in September 2008, regulators on both sides of the Atlantic began to buy securities to limit the negative effects on the economy.

While QE had a "significant" positive impact on real GDP and the consumer price index for the period until June 2011, the effect was often "close to zero" thereafter.

Economists expressed concern that programs aimed at increasing inflationary pressures exerted undue influence on stock valuations, as investors poured into the market in search of high returns. This creates risks for increasing inequality.

These arguments can be justified, the BIS study showed. In the UK and the US, the maximum increase after the shock of the announcement of the purchase of assets was about 0.2% for both real GDP and the consumer price index. At the same time, the effect on stock prices was "10 times higher in the US and 20 times higher in the UK."

source: bis.org






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