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QE: a successful start may be running into diminishing returns

Goodhart, C. A. E. and Ashworth, J. P. (2013) QE: a successful start may be running into diminishing returns. Oxford Review of Economic Policy, 28 (4). pp. 640-670. ISSN 0266-903X

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Identification Number: 10.1093/oxrep/grs034

Abstract

Existing studies may have underestimated the impact of QE1 on UK GDP because they did not take full account of the beneficial effect on credit risk spreads and on the exchange rate. However, all such effects were also influenced by the roughly simultaneous introduction of similar easing in the USA, which complicates the analysis. Another area where QE has been positive is in reducing public-sector borrowing costs. Where QE1 (and subsequent rounds) have disappointed is in their inability to stimulate a recovery in credit and monetary growth, amid an increased desire among banks to hold far more of their reserves at the central bank. Moreover, there is growing evidence of significant diminishing returns in QE2 as gilt rates have already fallen to historically low levels and the risk is that, if policy-makers fail to resuscitate the bank lending channel, further rounds of QE could potentially have negative returns.

Item Type: Article
Official URL: http://oxrep.oxfordjournals.org/
Additional Information: © 2013 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
Sets: Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 27 Mar 2013 15:18
Last Modified: 20 Jun 2019 01:46
URI: http://eprints.lse.ac.uk/id/eprint/49526

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