Staff Working Paper No. 899
The central bank balance sheet as a
policy tool: past, present and future
Andrew Bailey, Jonathan Bridges, Richard Harrison,
Josh Jones and Aakash Mankodi
December 2020
Staff Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the Bank of England or to state
Bank of England policy. This paper should therefore not be reported as representing the views of the Bank of England or members of
the Monetary Policy Committee, Financial Policy Committee or Prudential Regulation Committee.
Staff Working Paper No. 899
The central bank balance sheet as a policy tool:
past, present and future
Andrew Bailey, Jonathan Bridges,(1) Richard Harrison,(2) Josh Jones(3) and
Aakash Mankodi(4)
Abstract
This paper focuses on what has been learned from the past decade of previously unconventional monetary
policy measures and the emerging lessons from the effects of monetary policy responses to the Covid
shock. The paper explores two observations from recent quantitative easing (QE) policies in detail. First,
large QE programmes implemented quickly may be particularly effective in times of market dysfunction.
Second, a rapid pace of asset purchases may also enhance QE effectiveness during these periods. These
observations suggest a particular form of 'state contingency' for the impact of QE. The paper analyses the
potential implications of such state contingency for the appropriate conduct of QE policies and the choice
of policy instruments in more normal times. The paper also outlines some potential implications for future
central bank balance sheet policies and the operational framework to support them.
Key words: Monetary policy, financial stability, central bank balance sheet, quantitative easing, reserves.
JEL classification: E58, E52.
(1) Bank of England. Email: jonathan.bridges@bankofengland.co.uk
(2) Bank of England. Email: richard.harrison@bankofengland.co.uk
(3) Bank of England. Email: joshua.jones@bankofengland.co.uk
(4) Bank of England. Email: aakash.mankodi@bankofengland.co.uk
The views expressed in this paper are those of the authors, and not necessarily those of the Bank of England or its committees.
This paper was prepared for the Jackson Hole Economic Policy Symposium, 27-28 August 2020. Many colleagues have contributed
to the ideas and analysis in this paper. We would like to thank, without implicating, Saba Alam, Ben Broadbent, Andrew Hauser,
James Howat, Raf Kinston, Nick McLaren and Tim Taylor for discussions that materially influenced the arguments in the paper.
We are grateful to Charlotte Barton, Julia Giese, Jonathan Hall, Bonnie Howard, Mike Joyce, Don Kohn, Clare Macallan,
Sean Maloney, James Proudman, Dave Ramsden, Kate Reinold, Elisabeth Stheeman and Ryland Thomas for helpful comments and
discussions. Liam Jordison, Asja Karanusic, Alister Ratcliffe and Millie Rettie provided excellent research assistance.
The Bank's working paper series can be found at www.bankofengland.co.uk/working-paper/staff-working-papers
Bank of England, Threadneedle Street, London, EC2R 8AH
Email enquiries@bankofengland.co.uk
© Bank of England 2020
ISSN 1749-9135 (on-line)
Introduction1
The start of a new decade always prompts contemplation about the future. The Federal Reserve Bank of
Kansas City's 2020 Economic Policy Symposium provides an opportunity to do just that, with a focus on
monetary policy. This continues a Jackson Hole tradition.2
There are some similarities with the macroeconomic situation a decade ago. Short-term policy rates are
at their floors in many jurisdictions. Central bank balance sheets have reached historically
unprecedented levels, as a result of prompt and substantial policy responses to an enormous global
shock. One important difference, though, is that the nature of the shock to the world economy is
fundamentally different. Another is that some policy measures that were unprecedented at the time of
the Global Financial Crisis (GFC) of 2007-2009 are now more familiar parts of the central bank toolkit.
Against that backdrop, this paper focuses on what has been learned from the past decade of previously
unconventional policy measures and the emerging lessons from the effects of policy responses to the
Covid shock. In light of that, the paper also presents some speculative views on the implications for
future central bank balance sheet policies and the operational framework to support them. The intention
is to highlight some important questions for researchers and policymakers for the decade ahead.
Section 1 reviews central bank balance sheet developments, primarily from a UK perspective, from the
GFC to the end of 2019. The largest contributor to balance sheet expansion on the liabilities side of the
Bank of England balance sheet over this period was reserves. On the asset side of the balance sheet, the
largest contributor was driven by purchases of long-term government bonds, "quantitative easing" (QE)
by the Bank's Monetary Policy Committee (MPC). While scale does not always signify importance, the
paper focuses on these components.
With the benefit of hindsight, the quantity of high quality liquid assets (HQLA) held by the banking
system before the GFC was insufficient. The surge in commercial banks' demand for liquidity during the
GFC highlighted a structural shift in demand, as well as the need for a decisive use of the central bank
balance sheet to restore financial stability. The QE programmes following the GFC resulted in a large
increase in the quantity of reserves, so that liquidity within the banking system became abundant. The
reserves created as a by-product of QE operations therefore coincided with a large increase in the
demand for reserves for liquidity management by the commercial banking system.
The widespread adoption of large-scale asset purchase programmes around the world spawned a rich
body of empirical and theoretical work on the impact of QE, which has grown rapidly over the past
decade.
There is broad consensus that QE programmes have been successful in lowering government bond
yields, often by a considerable amount. Estimates of the macroeconomic effects are less certain, as each
step along the QE transmission mechanism - with the associated lags at each stage - makes it harder to
credibly identify causal effects. On balance, though, the literature provides evidence of ongoing QE
transmission to the macroeconomy and supports the view that at least some of the associated
transmission channels are persistent.
An accompanying theoretical literature has explored those transmission channels, and the paper
considers three broad groups, associated with: policy "signalling"; the "portfolio balance channel"; and
market liquidity. The review of this literature in Section 1, while noting the inherent difficulties in
distinguishing between alternative transmission channels, concludes that there is evidence of each
channel. Importantly, these channels need not be mutually exclusive.
Section 2 considers the policy response to the Covid crisis, where again the central bank balance sheet
played a crucial role. In the UK, the Bank of England balance sheet is now larger than at any point in its
history.3
The recent policy actions taken by the Bank of England were large, rapid and wide-ranging. The range of
actions spanned monetary policy decisions to deliver financial conditions consistent with achieving the
inflation target, liquidity operations to stabilise money markets and funding schemes to support
corporate financing. Other central banks responded in a similar way. Post-GFC tools were re-deployed in
extended or recalibrated forms and new interventions were introduced, incorporating innovations to
target them to the specific properties of the Covid shock.
It is too soon to draw firm conclusions on the efficacy of the policy response to Covid and the role of the
central bank balance sheet within that. However, some initial - necessarily tentative - observations may
provide some helpful guides for future debate. These observations focus on QE, which again played a
central role in the crisis response.
First, decisive QE programmes may be particularly effective in times of market dysfunction. Second, a
rapid pace of asset purchases may also enhance QE effectiveness during these periods. Taken together,
these observations suggest a particular form of 'state contingency' for the impact of QE. Recognition of
this potential for state contingency is not new, but the recent crisis offers a new lens through which to
assess its role.
The MPC decides on the overall stock of QE to deliver the required stimulus to meet the inflation target,
given prevailing financial conditions. Consistent with the two observations above, the decision to 'go big'
and to 'go fast' with QE in March 2020, a period of market dysfunction, may well have also avoided an
undesirable tightening in those financial conditions. Left unchecked, the market dysfunction at that time
could otherwise have amplified the substantial weakening in the outlook for growth and inflation.
Decisive action that was responsive to the degree of market dysfunction was a unifying theme across the
global central bank responses to the Covid crisis.
A third observation is that QE efficacy may also depend on the origin of liquidity demand. The nature of
the liquidity stresses in the Covid crisis differed from those experienced during the GFC, during which
commercial banks were at the centre of the shock. In the Covid crisis, the MPC's asset purchases
provided liquidity to gilt market investors so that outright QE purchases reached the non-bank investors
experiencing the effects of liquidity stress and driving the associated market dysfunction.
Section 3 considers potential implications associated with these observations for the evolution of central
bank balance sheets in the years ahead. Here the suggestions are necessarily more speculative and the
objective is to raise questions for future research and policy debate.
Lessons from the past suggest that, for both financial stability and monetary policy purposes, the central
bank balance sheet should move in a countercyclical manner. However, the persistence of the effects on
the balance sheet from policy actions directed at these purposes may be somewhat different.
3 This paper was prepared before the MPC's decision to further increase the scale of asset purchases in November 2020.
The most speculative line of enquiry considers the potential effects of state-contingent QE on monetary
policy. The particular form of QE state contingency explored in Section 2 may provide a greater
motivation for relying more on balance sheet unwind than increases in the policy rate to normalise the
stance of policy when - and only when - such a normalisation becomes appropriate. If the effects of QE
are more powerful in 'crisis' states of the world, a greater reliance on balance sheet unwind during
normalisation could provide more scope to 'go big' and 'go fast' in response to future crisis shocks.
It would be unwise to extrapolate these conjectures too far. Any decision on future balance sheet
policies would, as always, require judgement based on a careful assessment of economic theory,
empirical evidence and practical considerations. However, the tentative and speculative analysis in
Section 3 suggests that the question of the appropriate policy mix during a normalisation process may be
more nuanced than had been previously thought.
A more concrete conclusion is that it is highly desirable for the operational framework to support a wide
range of policy measures. In particular, the ideal size and composition of the balance sheet should be
designed to support countercyclical balance sheet adjustments for both monetary policy and financial
stability reasons.
A proposed balance sheet framework is set out in Section 3, which builds on recent Bank analysis and
consultation. The proposal represents a natural middle ground between scarcity and overabundance of
reserves. In steady-state, this framework supplies the level of reserves that banks demand,4 thereby
delivering market rates close to the desired policy rate. This approach also has the benefit of supplying
the minimum level of reserves required for financial stability purposes independently of any decisions to
adjust the stock of assets held for monetary policy purposes. Simple scenario analysis explores how the
countercyclical balance sheet responds to alternative shocks that require policy responses targeted at
monetary policy and financial stability.
A common lesson from both the GFC and the Covid crisis is that policymakers must be prepared to react
decisively to the unexpected. For central banks, readiness to use the balance sheet as a policy tool lies at
the heart of that preparedness. Many questions remain to be answered in the quest to better
understand the effects of balance sheet policies, their optimal deployment and the operating framework
that can best support them. This paper seeks to tee up some of those questions. Answering them is
surely a priority for the decade ahead, for researchers and policymakers alike.
1. Lessons from the past
The crucial role played by the central bank balance sheet in the financial system has long been
understood.5 In the decade following the GFC central bank balance sheets were centre stage. That period
witnessed large and sustained balance sheet expansions as a by-product of a host of previously
unconventional policy measures. This section reviews the key drivers of balance sheet expansion since
the GFC and their economic effects, focusing on the United Kingdom.
The majority of the expansion in the Bank of England's balance sheet since the GFC has been associated
with the widespread use of "quantitative easing" or "QE", financed by the creation of central bank
reserves (Charts 1 and 2).6 Each side of the balance sheet is considered in turn.
4 Where reserves are freely supplied at the policy rate against high quality liquid collateral.
5 See, for example, Shafik (2016). Ramsden (2018) concludes that "the Bank's balance sheet is a key part of the infrastructure for securing monetary and financial
stability for the good of the people of the UK".
6 The Bank of England balance sheet has some particular idiosyncrasies. For example, the Bank's Issue Department and Banking Department have separate
balance sheets. References to the Bank's balance sheet in this paper refer to the consolidated balance sheet of both departments. Asset purchases as part of
the Bank's quantitative easing programmes discussed in this paper appear on the Bank's balance sheet as an asset in form of a loan to the Asset Purchase
Facility (APF). This is an important institutional feature in the United Kingdom, since any losses made by the APF are indemnified by HM Treasury. However,
Chart 1 Assets on Bank of England Balance Sheet
Chart 2 Liabilities on Bank of England Balance Sheet
Source: Bank of England. Charts are a stylised and partial view of the Bank's consolidated balance sheet and may not precisely balance as a result. The Bank's full consolidated balance sheet is published with a
five quarter lag. Assets and liabilities from both the Bank's Issue Department and Banking Department have been consolidated into a single chart. See here for more detail. QE purchases are reflected on the
Bank's balance sheet as an asset in form of a loan to the Asset Purchase Facility (APF). This chart shows a breakdown of the loan by instrument type. The Term Funding Scheme (TFS) was transferred from the
APF to the Bank's own balance sheet in January 2019. The Special Liquidity and Funding for Lending Schemes (SLS and FLS respectively) were funded through asset swaps rather than reserves, so were not on
b alance sheet. They are nevertheless shown for context.
unless there is risk of confusion, this paper abstracts from this accounting procedure. Unless otherwise stated, the balance sheet is presented 'as if' the assets
purchased by the APF appear directly on the Bank's balance sheet.
1.1. The effects of quantitative easing (QE)
Over the 2009-2019 period, the policy with the largest footprint on central bank balance sheets was QE.7
In this paper, QE is defined as large-scale purchases of financial assets by a central bank, with the aim of
providing monetary stimulus, by lowering long-term interest rates.8
Over the past decade, QE has been widely used internationally, as policy rates have been cut to, or close
to, their effective lower bounds. QE has therefore become the primary tool with which many central
banks around the world have sought to affect monetary conditions.
In the United Kingdom, QE was first introduced in March 2009 in the depths of the GFC. The aim was to
provide additional monetary stimulus when the policy rate became constrained at its effective lower
10
bound.9, The Monetary Policy Committee (MPC) made QE purchases of £200bn during 2009-2010, with
UK government bonds (gilts) making up the vast majority of assets purchased.11 These gilts were
purchased on the secondary market, predominantly from dealers acting on behalf of non-bank private
sector institutions such as insurance companies and pension funds.12 The MPC has subsequently
engaged in multiple rounds of QE over the last decade in response to different economic shocks
(Figure 1).13 In August 2016, in response to the EU withdrawal referendum, the MPC extended its QE
policy to purchase £10bn of investment-grade corporate bonds, alongside further gilt QE. Moreover, as
discussed in Section 2, QE was a key element of the policy response to the Covid crisis, with the MPC
announcing a further £300bn of asset purchases during March-June 2020, including further corporate
bond purchases. When the current round of purchases is completed around the turn of the year, the
total stock of UK QE will have risen to £745bn.
Figure 1 The Bank of England's QE journey
Internationally, asset purchases have played a similarly central role in monetary policy over the past
decade. For example, the Fed embarked on large-scale purchases of agency MBS and debt issuance in
November 2008 and of US Treasuries in March 2009. This was followed by the announcement of further
purchases in late 2010, the Maturity Extension Programme in September 2011 and another round of
open-ended purchases starting in late 2012. In Japan, asset purchases were first introduced much earlier,
in 2001, and "Quantitative and Qualitative Easing" was a key part of the post-GFC response in 2013,
while in Europe the ECB announced its "Public Sector Purchase Programme" in early 2015.14 More
recently, as discussed in Section 2, asset purchases have formed a key part of the central bank response
to the Covid crisis around the world.
The UK's QE portfolio currently amounts to around 30% of nominal UK GDP and that share will continue
to rise as the latest round of purchases are completed over the course of this year. For the Fed, ECB and
Bank of Japan asset purchase schemes currently total around 27%, 28% and 104% of GDP respectively.15
The large and sustained expansions of central bank balance sheets across the world over the past decade
has prompted a burgeoning literature on the theoretical underpinnings of QE and the empirical evidence
on its macroeconomic effects. A brief overview of each topic is given below.
The macroeconomic impact of QE in theory
Ahead of its adoption during the global financial crisis, many academics were sceptical that QE would
have any effects on the macroeconomy at all. For example, the irrelevance proposition of Eggertsson and
Woodford (2003) demonstrated that a change in the composition of households' portfolios induced by
QE would have no effect on equilibrium asset prices or real variables in a widely studied benchmark
model.16 This result rested on some strong assumptions, including: i) perfectly functioning financial
markets (the so called 'efficient market hypothesis'); ii) the absence of non-pecuniary advantages to
different assets; and iii) investors' preferences characterised by a particular class of utility function.
These assumptions are, however, typical of many mainstream macroeconomic models, particularly those
developed before the global financial crisis.
In the decade of research that has followed, theoretical frameworks in which QE has a macroeconomic
effect have been more firmly established. These frameworks typically deviate from the benchmark
assumptions outlined above by incorporating more realistic frictions. The resulting body of literature has
put forward several potential transmission channels through which QE may have an impact on financial
conditions and the macroeconomy. Broadly, these channels can be categorised into three groups. First,
those associated with policy "signalling". Second, those associated with the "portfolio balance channel."
Third, those associated with market liquidity.17
It is important to note that there is no reason to expect these channels of QE transmission to be mutually
exclusive. Indeed, it seems likely that each channel operates to at least some extent most of the time. All
channels ultimately operate via an effect of asset purchases on long-term interest rates and hence
monetary conditions and ultimately economic activity and inflation. There is no a priori reason why all
channels should not operate simultaneously: why should the benchmark textbook model be misspecified
in just one way? Moreover, it is widely accepted that there are several coexistent transmission channels
of conventional monetary policy: why should QE be any different? As discussed below, what matters in
practice is which channels are most important and whether there may be circumstances where some
channels are likely to be particularly effective.
With this caveat in mind, it is nevertheless convenient to consider each channel in turn.
14 For a much fuller review of international asset purchase programmes see, for example CGFS (2019).
15 Based on latest available data as of early August. Fed data includes USTs, MBS and agency debt; ECB data covers all asset purchases for monetary policy
(including corporate bonds); Bank of Japan data covers government securities. Nominal GDP figures are as at end-2019.
16 This result can be viewed as an extension of a classic neutrality result of Wallace (1981), which demonstrates that the composition of public liabilities has no
effect on equilibrium prices and quantities. As the title of Wallace's paper highlights, his results are in turn a variant of the Modigliani-Miller theorem (that the
value of a firm is unaffected by the composition of its liabilities) applied to public sector liabilities.
17 There is relatively little theoretical literature on the role of reserves and money per se in transmitting the effects of QE. Aksoy and Basso (2014) and Reis (2017)
present models in which QE operates via the increase in interest-bearing reserves held by commercial banks. An increase in reserves dilutes the overall risk of
bank portfolios In Aksoy and Basso (2014), this occurs via a reduction in liquidity risk. In Reis (2017), additional reserves cushion the effects of an increase in
sovereign default risk. Christensen and Krogstrup (2016) develop a framework in which changes in reserves matter for financial conditions via their effects on
bank behaviour.
The 'signalling channel' was perhaps the most natural explanation for an impact of QE in the early
literature, without substantial deviation from the baseline model.18 While the precise mechanisms for
the signalling channel are less well established in the theoretical literature, the explanation tends to
centre on QE as a way to mimic a commitment by the policymaker to hold rates lower for longer than
they otherwise would.19
The 'portfolio balance channel' of large-scale asset purchases is described by Ben Bernanke as follows:
[t]he so-called portfolio balance channel ... [implies] that once short-term interest rates have
reached zero, the Federal Reserve's purchases of longer-term securities affect financial
conditions by changing the quantity and mix of financial assets held by the public. (Bernanke,
2010).
As such, the portfolio balance channel can be generated in any theoretical framework in which changes
in the relative quantities of assets held by the public has an effect on financial conditions. Indeed, a
macroeconomic role for QE via such effects has been established in a number of ways. Replacing the
assumption of perfectly efficient markets with one of limits to arbitrage, market segmentation, or
preferred habitats can generate downward sloping demand curves for individual assets. In turn, this
means that changing relative asset supplies for the private sector through QE purchases will affect
relative returns. For example, one approach is to include portfolio preferences, so that different assets
are imperfect substitutes on account of their non-pecuniary properties (see for example, Brainard and
Tobin (1963), Andres et al (2004), Chen et al (2012) and Harrison (2012)). Other strands of the literature
incorporate portfolio adjustment costs (Harrison, 2011, 2017) or preferred habitats, in which investors
might demand certain assets for specific - perhaps regulatory - purposes (Vayanos and Vila, 2009, 2020).
Frameworks in which some types of assets are more suitable for use as collateral imply that QE can
affect the behaviour of leveraged investors by changing the composition of their balance sheets (Gertler
and Karadi, 2011, 2013). Even when investors are rational and markets are efficient, generalising the
form of investors' utility functions can lead to a role for portfolio compositions in determining asset
prices (King, 2015). A wide range of mechanisms have therefore been studied, all of which are consistent
with a broad characterisation of the portfolio balance mechanism and many of which imply similar
macroeconomic effects of QE.
A third potential channel of QE transmission is the liquidity channel. This channel is most often
associated with addressing impaired market functioning in specific markets, which might otherwise lead
to a substantial tightening in monetary conditions or disrupt the monetary transmission mechanism.20
The liquidity channel can therefore operate in addition to those discussed above and is likely to be
particularly relevant for the impact of QE in times of financial turbulence. The liquidity channel relies on
the existence of a market or informational friction, which creates a role for central bank asset purchases
in encouraging trading and reducing liquidity premia in a given market (Joyce et al, 2011; Haldane et al,
2016). This liquidity channel was important in the design of the Bank of England's (relatively small)
purchases of private sector assets in 2009 - which included commercial paper and corporate bonds. The
aim was to provide confidence to investors and issuers that they could find buyers for these assets if they
needed to sell quickly, without incurring an excessive price discount.21
Figure 2 below traces the transmission of the portfolio rebalancing, signalling and liquidity channels to
the wider economy. As discussed above, there is no reason to expect these channels to be mutually
exclusive. Ultimately, each mechanism acts to lower longer-term interest rates. Associated with that, the
cost of borrowing is reduced, funding conditions are eased and asset prices are stimulated, all very much
akin to the transmission mechanism of a reduction in the short-term policy rate.22 The result is that
spending is stimulated, boosting GDP and pushing inflation - the ultimate objective - back towards its
target.
Figure 2 Stylised QE transmission mechanism
Taken together, the growing body of research on the theoretical underpinning of QE means that - while
there remains much more to learn - the state of knowledge has moved beyond Ben Bernanke's famous
remark that "the trouble with QE is that it works in practice but not in theory".23
The effects of QE in practice
The other clause of Ben Bernanke's statement - that QE works in practice - is now supported by a rich
body of empirical work, which has grown rapidly over the past decade. The review below draws out
some of the key findings from that literature.24
There is broad consensus that QE programmes have been successful in lowering government bond
yields, often by a considerable amount. This result has been established across multiple jurisdictions and
using a wide range of different methodologies. For example, Gagnon (2016) collates estimates from
28 studies across the US, UK, Japan, EA and Sweden and finds an average reduction in 10-year
government bond yields of around 70 basis points associated with a QE intervention normalised to
10 per cent of GDP. Similar surveys of the impact of QE on yields corroborate this finding - see for
example Borio and Zabai (2016) and CGFS (2019). For the UK, estimates of the impact of QE1 and QE2 on
10-year yields range from 50-100 basis points (see for example Joyce et al, 2011; Haldane et al, 2016;
and Christensen and Rudebusch, 2012).25
Beyond reduced government bond yields, the evidence suggests that QE programmes have also been
accompanied by a more general easing in monetary conditions. CGFS (2019) assesses 37 studies
internationally and concludes that "an extensive academic literature suggests that asset purchases
influenced financial conditions markedly." The report also notes that private sector asset purchases can
be particularly effective at easing credit conditions of the assets targeted. The UK's experience of the
Corporate Bond Purchase Scheme in 2016 is consistent with that finding. For example, D'Amico and
Kaminska (2019) find that the Corporate Bond Purchase Scheme (CBPS) reduced corporate credit
spreads.
The evidence on the effects of QE on bank lending is relatively mixed. Some recent papers for the euro
area and US find a material impact on bank lending from QE purchases (see for example Tischer, 2018,
for the EA and Rodnyansky and Darmouni, 2017, for the US). In contrast, Butt et al (2014) find no
evidence of a bank lending channel in the UK, arguing that the high churn in deposits created by QE
meant that they were not viewed as a stable source of funding. Giansante et al (2020) corroborate this
finding for the UK in a recent study.
Empirical studies of the effect of QE have tended to focus on the 'first-round' transmission of QE to
interest rates, financial market variables and asset prices. As Borio and Zabai (2016) note, "while the
literature on the impact of unconventional monetary policies on financial conditions is vast, that on their
effect on output and inflation is much more limited." This is unsurprising, as each step through the
transmission mechanism - with the associated lags at each stage - makes it more difficult to credibly
identify causal QE effects. Other events cloud the picture and the counterfactual is unknowable. An
intraday event study can pinpoint QE's effects on yields, but is of no use in establishing the ultimate
effects on GDP and inflation. Of course, it is these macroeconomic effects that are of most interest to
policymakers.
To produce estimates of the macroeconomic effects of QE, some studies have taken estimates of the
financial market impacts and applied them to standard macroeconomic models. These estimates assume
that the transmission of QE beyond financial markets works in the same way as for conventional policy
and are open to challenge on the persistence of the financial market effects of QE (discussed below).
Other studies have attempted to identify QE shocks in a structural VAR setting, though such studies must
contend with likely structural breaks around the time QE was introduced. On balance, studies that do
attempt to trace out the macroeconomic effects of QE tend to find meaningful impacts on both GDP and
inflation. For example, CGFS (2019) surveys 25 such studies internationally and finds positive effects
overall on both output and inflation, while also acknowledging the uncertainty of those estimates.26
Work by Bank of England economists suggest that the initial £200bn of QE in the UK may have pushed up
on the level of GDP by a peak of 1.5%-2% and on inflation by 0.75%-1.5% (Joyce, Tong and Woods, 2011).
Later work by Weale and Wieladek (2016) took an SVAR approach and found that both the US and UK's
QE programmes may have raised GDP materially, with peak effects that are higher than most other
estimates. Haldane et al (2016) expand this SVAR approach across a broader set of cou