Prof Jagjit Chadha (University of Kent) presenting.
Title: Roundheads versus Cavaliers: An Early Assessment of Quantitative Easing
Abstract: Quantitative easing in the UK has involved the creation of fund to purchase medium term dated government bonds with borrowed central bank reserves and so has increased the liquidity of non-bank financial sector and temporarily eased the budget constraint of HMT. I outline the theoretical rationales for QE: (i) portfolio balance of the non-bank financial sector; (ii) an offset for the zero bound; (iii) signalling mechanism about medium term inflation expectations. I gauge its effectiveness in terms of the impact on bond and asset prices. And assess the impact on a macro-finance yield curve and judge that the purchase programme has subtracted somewhat less than 100Bp from medium term yields reported by the Bank of England. Finally, I assess the case for QE from three separate DGSE models and find that bond purchases are typically of limited importance.