The master thesis analyzes "quantitative easing" policy in the USA which is very controversial. Quantitative easing influences a liquidity of the bank system and has different impact on economic variables. The relationship between growth of total reserves and economic variables is analyzed during 9/2008 - 3/2012 by Eviews program. The conclusion is that impact of quantitative easing policy on economic variables has been different in comparison with former assumptions.

The master thesis analyses potential impacts of introduction of the quantitative easing by the Czech National Bank as a new monetary instrument in the Czech Republic, which would be used as a means of fight against the economic cycle. Instruments which a central bank can use in the area of monetary policy become limited in the era of major interest rates inclining to zero. Power of conventional means becomes insufficient. As a result, more and more central banks consider introduction of a relatively new instrument -- quantitative easing which is applied e.g. by the FED or the ECB at present. The main goal of the thesis is to assess advantages and disadvantages of introduction of quantitative easing by the Czech National Bank and its ability to influence the economic cycle when basic principles of quantitative easing are applied on a real small opened economy. The output should present analysis and assessment of costs and benefits arising from introduction of quantitative easing. Actual data from the economies, where the quantitative easing has been applied, are analyzed in the thesis. The results of the analysis are used as a basis for creation of a simple universal model of functioning of quantitative easing which is after customizing according to specifics of the Czech economy, applied to the Czech Republic. Three possible scenarios of development of economy after introduction of quantitative easing by the CNB were developed on the basis of the model which differs from each other as they relate to a different phase of economic cycle.

This thesis aims to investigate the long-term behaviour of the Swedish stock market under quantitative easing (QE) between the years 2015-2019 in comparison to an equally long period before the implementation of QE. The relationship is analysed within the framework of transmission channels of monetary policy and with considerations for previous research on the topic. By the means of an autoregressive distributed lag (ARDL) model, we conduct a regression analysis using the price level of the OMX Stockholm 30 (OMXS30), the value of Riksbank’s assets, the short-term interest rate and the industrial production index. The results show significant but weak evidence of a positive relationship between the OMXS30 index and the Riksbank’s assets value. Furthermore, we analyse the findings to provide an insight into the transmission of unconventional monetary policy to the stock market in a small open economy. Finally, we present some broad implications of our study, as well as suggestions for future research on the topic.

This thesis has identified a gap in literature regarding the effects of quantitative easing (QE) on equities since the financial crisis in 2008. An event study has been conducted to investigate the portfolio rebalance effect stating that assets not regarded as close substitutes to targeted assets under the QE-scheme, e.g. equities, should respond with a lag to new information regarding QE. Also literature suggests that larger stocks should tend to lead smaller stocks. Assuming investors regard larger stocks as safer we aim to test the hypotheses that stocks will respond to QEannouncements containing new, unanticipated information and that larger, safer stocks will lead smaller, more volatile. The responses in the U.S. stock indices S&P 500, its corresponding sectors as well as mid and small cap indices are examined on nine identified events. Results show that stocks respond immediately on the day of a QE-announcement, but also that returns continue to increase the following days after. Also smaller, more volatile stocks have larger average abnormal returns compare to larger, less volatile stocks.

We analyse the effects of quantitative easing (QE) on Swedish bank profitability on the four largest banks in Sweden between 2015-2021 by utilizing daily stock prices as a proxy for bank profit. Using an event study approach, we find that QE has a significant positive effect on bank profitability in Sweden as wholesale funding conditions improve. This suggests that structural differences in bank funding have an impact on the effect of QE. Furthermore, we investigate the individual effects of QE on bank profitability. We determine that QE benefits banks with higher credit losses on their balance sheet due to improvements in debt serviceability. Finally, we complement our study by investigating how QE affects debtholders of the banks through credit default swaps (CDS). We find that QE reduces prices on CDS, therefore signalling an improvement in wholesale funding conditions. This indicates that both equity and debtholders perceive the effects of QE positively.

Climate change is a major concern impacting every aspect of life including economics. Therefore, it seems interesting to discuss the role of monetary policy in global warming mitigation. Previous papers hint that monetary policy, especially the European Central Bank’s quantitative easing, may have a bad impact on the environment. Here we will check this statement using two simple linear regressions to see if quantitative easing has an impact on carbon emissions and firm’s willingness to pollute, in the Eurozone. We find that quantitative ease has no or very small effect on these environmental features. Finally, we will give an overview of the discussion around how quantitative easing and central banks’ actions can actively reduce climate change.

It is widely accepted that banks are one of the most significant financial intermediaries in any economy, facilitating the flow of capital between savers and borrowers. While this may be the case in many advanced economies, including the US, little research has been done on how the quantitative easing (QE) program of central banks affects bank performance. This paper examines the impact of the Federal Reserve’s (the Fed’s) quantitative easing (QE) policies and announcements on bank stocks in the United States (US) during the Covid period. While we do not dismiss the role of investor sentiment, we discover that QE interventions improved bank stock returns albeit with a lag in the case of balance sheet expansion. Furthermore, the impact varied with a greater response from banks with stronger balance sheets. Banks with weaker balance sheets were more sensitive to QE interventions as well. These findings have practical implications for policymakers, regulators, banks and market participants to make informed decisions during crises

Quantitative Easing is an unconventional instrument when conducting monetary policy with the aim of stimulating the economy. The instrument is a complementary tool when changing the nominal interest rate is no longer effective. In the United States this unconventional instrument has been used through three different waves between December 2008 to October 2014. This research paper investigates two different regressions, one for the dependent variable consumption and one for the dependent variable investments to capture the effects on households and firms respectively. The results are used to study whether the unconventional monetary policy has had any effects on these variables and if the dependent variables are affected to different degrees. Data for this paper is collected between the first quarter of 2005 until the fourth quarter of 2019. The modelling used is the Auto Regressive Distributed Lag Model (ARDL) for the two different regressions. All variables in the regressions are critically tested for unit roots, autocorrelation, heteroscedasticity and misspecification to validate the analysis. The findings of our ARDL models indicate that investments are affected by quantitative easing to a larger degree than consumption by 3.8 times the change of the coefficients at its optimal lags.

Equity Risk Premium (ERP) is the cornerstone in Financial Economics. It is a basic requirement in stock valuation, evaluation of portfolio performance and asset allocation. For the last decades, several studies have attempted to investigate the relationship between macroeconomic drivers of ERP. In this work, I empirically investigate the macroeconomic determinants of UK ERP. For this I parsimoniously cover a large body of literature stemming from ERP puzzle. I motivate the empirical investigation based on three mutually exclusive theoretical lenses. The thesis is organised in the journal paper format. In the first paper I review the literature on ERP over the past twenty-eight years. In particular, the aim of the paper is three fold. First, to review the methods and techniques, proposed by the literature to estimate ERP. Second, to review the literature that attempts to resolve the ERP puzzle, first coined by Mehra and Prescott (1985), by exploring five different types of modifications to the standard utility framework. And third, to review the literature that investigates and develops relationship between ERP and various macroeconomic and market factors in domestic and international context. I find that ERP puzzle is still a puzzle, within the universe of standard power utility framework and Consumption Capital Asset Pricing Model, a conclusion which is in line with Kocherlakota (1996) and Mehra (2003). In the second paper, I investigate the impact of structural monetary policy shocks on ex-post ERP. More specifically, the aim of this paper is to investigate the whether the response of UK ERP is different to the structural monetary policy shocks, before and after the implementation of Quantitative Easing in the UK. I find that monetary policy shocks negatively affect the ERP at aggregate level. However, at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of Quantitative Easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the Bank of England’s monetary policy before and after the monetary stimulus. In the third paper I examine the impact of aggregate and disaggregate consumption shocks on the ex-post ERP of various FTSE indices and the 25 Fama-French style value-weighted portfolios, constructed on the basis of size and book-to-market characteristics. I extract consumption shocks using Structural Vector Autoregression (SVAR) and investigate its time-series and cross-sectional implications for ERP in the UK. These structural consumption shocks represent deviation of agent’s actual consumption path from its theoretically expected path. Aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, when the actual consumption is less than expected, the ERP rises. Durable and Semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocks. In the fourth and final paper I investigate the impact of short and long term market implied volatility on the UK ERP. I also examine the pricing implications of innovations to short and long term implied market volatility in the cross-section of stocks returns. I find that both the short and the long term implied volatility have significant negative impact on the aggregate ERP, while at sectoral level the impact is heterogeneous. I find both short and long term volatility is priced negatively indicating that (i) investors care both short and long term market implied volatility (ii) investors are ready to pay for insurance against these risks.

Inflation target was introduced in 2013 in Japan. The goal was to maintain price stability and sustainable inflation rate that is conducive to optimal consumption and investment decisions. However, Japanese inflation rate has been consistently below the target rate. We want to examine why the failure happens in such a big economy. This thesis focuses on inflation expectation as the main factor that leads to unanchored inflation. Inflation expectation can be distinguished into adaptive and rational expectation. To analyse inflation expectation, we regress inflation on four relevant variables: forecasted inflation, lagged inflation, economic slack and import inflation. Our goal is to identify the significance of forecasted inflation and lagged inflation, which are the main variables, to determine the characteristics of the two types of inflation expectation. This time-series analysis is on a monthly basis covering the period between 2013 and 2018. The results show that agents are near-rational rather than rational, meaning that they tend to overweigh the costs of inflation. Also, it is shown that they have minor but significant backward-looking tendency and believe that past inflation determines the current inflation. Hence, inflation expectation could give some useful insights into unanchored inflation.