Thesis advisor: Peter Ireland / With interest rates stuck near zero for the foreseeable future, the Federal Reserve has had to employ numerous unconventional monetary policy measures in an attempt to stimulate an economy in the after math of the worst economic downturn since the Great Depression. I assess the usefulness of market-based measures of expectations in gauging the effects of these seemingly extreme policy actions undertaken in an environment of unprecedented fear and uncertainty. I use a principal component analysis to combine a number of asset prices that indicate different types of market expectations; by combining these variables into one single variable indicator, this principal component variable filters out the variance among these similar variables and focuses on the common movements among the variables that can be attributed to a specific market force such as investors’ inflation expectations, overall market risk appetite, and economic growth expectations. / Thesis (BA) — Boston College, 2012. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: College Honors Program. / Discipline: Economics.

We assess the impact of the ECB's unconventional monetary policy (UMP) on the wealth distribution of households in ten euro area countries. For this purpose, we estimate the effects of an ECB balance sheet expansion on financial asset and housing prices by means of vector autoregressions. We then use the estimates to carry out micro simulations based on data from the Household Finance and Consumption Survey (HFCS). We find that the overall effect of UMP on the net wealth distribution of households differs depending on which wealth inequality indicators we use. There is an inequality-increasing effect for the majority of the countries under review when we use wealth inequality indicators that are sensitive to changes at the tails of the wealth distribution. The effect is more equalizing when we base our assessment on the Gini coefficient. It is also important to note that one-third of the households in our sample does not hold financial or housing wealth and is thus not directly affected by UMP measures via the asset price channel. / Series: Department of Economics Working Paper Series

Magister Commercii - MCom / A possible effect of quantitative easing (QE) undertaken by the United States of America (USA) Federal Reserve Bank (Fed) may have been an increase in capital flowing into emerging market economies (EMEs). The 2008 global financial crisis created an environment in which traditional monetary policies – cutting policy rates – became ineffective in stimulating growth. Faced with this policy environment, several high-income countries including the USA resorted to unconventional monetary policies notably QE, to grow their economies. While QE was effective in lowering interest rates in high-income countries, some argued that investors switched to higher yielding assets, mostly EME assets. Therefore, QE is perceived to have increased capital flows into EMEs. Using a dynamic panel data model with fixed effects this mini-thesis investigates empirically whether QE worked through unobservable channels to increase gross private capital inflows to Brazil, Russia, India, China and South Africa (BRICS) in the period 2000-2015. The study finds evidence in support of the view that QE increased capital inflows to EMEs. The results reveal that gross private capital inflows to the BRICS increased during the QE intervention period and that the increase was higher in the first period of QE than in subsequent QE periods. The empirical results also reveal differences in the way types of capital flows responded to QE; portfolio flows, and in particular equity flows were the most responsive to QE.

This thesis makes two main contributions to the literature. The first is to establish the existence of a capital supply channel, in particular a bank lending channel of monetary policy transmission in the UK using a clean measure of bank loan supply. In this study we exploit the revealed debt preferences of debt issuing firms by using the Becker and Ivashina (2014) fixed effects framework to isolate the impact of credit supply. By conditioning the sample on non-financial firms whose debt issuance is observed, we are able to eliminate the effects of credit demand and to isolate a clean measure for bank loan supply. In this thesis, we find that the tendency by unconstrained, non-financial firms to substitute corporate bonds for bank loans at different points of the financial cycle reflects changes in bank loan supply. We also find that the patterns of substitutability are consistent among more granular classifications of heterogeneous debt. Our results reveal that among unconstrained firms, the proportion of new bank loan issuance declines, while the proportions of corporate bonds and program debt issuance tend to increase, when faced with unfavourable credit market conditions. We then create a loan to bond substitution measure based on observed substitution behaviour of unconstrained firms. We find that this measure explains the out of sample bank loan issuance behaviour of constrained firms. As a result we conclude that the measure is able to cleanly capture changes in bank loan supply. We extend the study to examine the impact of bank loan supply on the financing, hiring and investment decisions of UK non-financial corporations. We find that bank loan supply disruptions significantly and disproportionately affect the hiring and inventory investment decisions of bank dependent firms relative to those of non-bank dependent firms. The propensity to invest or hire among bank dependent UK non-financial firms declines relative to non-bank dependent firms when bank loan supply deteriorates. Moreover, the fixed investment decisions of non-bank dependent firms tend to decline following adverse bank loan supply shocks. These results confirm the existence of a bank lending channel among UK non-financial firms, and the findings are in line with the narrow credit view of monetary policy transmission. Our second central contribution is to analyse the impact of orthogonal QE shocks, credit supply shocks, credit demand shocks, and monetary policy shocks on the aggregate debt issuance behaviour of UK non-financial firms. Using structural vector error correction models (SVECM), we show that QE shocks increase corporate bond issuance and compress term spreads, but have no effect on the policy rate. Moreover, we observe that unexpected increases in the monetary policy rate lead to a decline in corporate bonds in the short term. While credit supply shocks move aggregate bank lending and aggregate corporate bond issuance in the same direction, corporate bond issuance responds with a lag to fluctuation in credit supply. This implies that adverse credit supply shocks may produce amplified negative effects on capital supply as both corporate bonds and bank loan decline. We also establish a counterfactual for corporate bonds and bank loan issues based on our structural model. We find that the QE policies result in the Bank of England averting a decline in corporate bond issuance of between 3% and 10% during the QE period. Our findings in this thesis point towards the existence of a portfolio balance channel of QE that operates in the UK corporate bond markets during the QE period.

On November 25, 2008, the Federal Reserve initiated what came to be the largest Asset Purchase Program in history1, the Large-Scale Asset Purchase Program, widely known a quantitative easing (QE). When the Federal Reserve in October 29, 2014, announced the end of the program, they held $4.5 trillion worth of assets. This rather unconventional monetary policy came in the aftermath of the 2008 financial crisis and since its implementation, critics have argued that the policy increases inequality in terms of income and wealth. Studies on the impact of QE on income inequality lead to divergent conclusions, but the close link between QE and the stock markets, as explained by the Portfolio Rebalancing Effect, suggests that QE should increase wealth inequality. This hypothesis however, relies on a crucial assumption, namely that richer households hold a larger portion of their wealth in stocks. As other assets of a household, such as the primary residence, are likely to increase less than proportionally with wealth, I find it plausible that the portion allocated to direct or indirect stock holdings increases with wealth, resulting in a higher exposure to stocks for the very rich. Statistics from the Survey of Consumer Finances, presented in this paper, confirm that richer households indeed have the higher exposure to stocks. I use a difference-in-difference model to estimate the causal impact of QE on wealth inequality in the United States and my results suggests that wealth inequality attributable to QE) increased with at least 25 percent, measured as a change in the wealth-ratio between the 9th decile of households and the artificial middle-income household constructed in accordance with the Synthetic Control Method.

The purpose of this paper is to evaluate the effects of the non-standard instrument of the monetary policy -- quantitative easing (QE) on the economies of the countries (or currency unions) that use this policy (Japan, USA, United Kingdom, eurozone). This paper pays attention at the QE mechanism description and its macroeconomic context, especially connection of QE with financial markets and real economy. It is shown a wide range of possible impacts on GDP, inflation, commodities, financial assets, financial system stability and expectations within the transmission mechanism. Newest data (2012), studies and paradigms of short run macroeconomics (especially Austrian business cycle theory, new Keynesian economics and real business cycle theory) are used.

A research report submitted to the University of the Witwatersrand in partial fulfilment of the requirements for the degree of Master of Management in Finance and Investment. / This study examines Quantitative Easing policy programs of developed countries and their potential impact on Middle Income Countries through capital inflows. The study specifically focuses on the United States and European Union Quantitative Easing programs and investigates potential effects through the various transmission channels. An Autoregressive Multifactor MIDAS approach is used to carry out the empirical analysis and the study finds that lagged capital inflows are highly significant across the different models run and that there is evidence of transmission of quantitative easing to capital inflows to Middle Income Countries along the portfolio rebalancing and liquidity channels. / MT2017

Since the start of the financial crisis in 2008, the Federal Reserve has been engaging in quantitative easing. Quantitative easing is a form of open market operation in which the Federal Reserve buys long-term U.S. government and other securities, versus traditional open market operations that occur through the short-term Treasury bill market. At the same time, the shadow bank system, which is a system of financial intermediaries that perform unregulated credit intermediation outside of traditional banks, has contracted significantly. Some argue that this contraction is due to a collateral crunch induced by quantitative easing in the shadow bank system—a crunch that occurred when the Federal Reserve’s quantitative easing program took high-quality collateral off the market. I will focus specifically on repurchase agreements, an instrument within the shadow banking that uses the same types of securities that the Federal Reserve has been buying during quantitative easing as collateral, to determine whether quantitative easing has led to a contraction of the repurchase agreement market. I find that increases in Federal Reserve asset holdings from 2005-2013, and specifically during QE1, are associated with decreases in primary dealer repurchase agreements. This shows that under certain circumstances, Federal Reserve asset purchases lead to contractions in the shadow bank system. This paper aims to increase understanding of how monetary policy affects shadow banking and understanding of the unintended consequences of monetary policy, such as decreased shadow bank lending caused by quantitative easing.

As a consequence of asset purchases by the European Central Bank (ECB), longer-term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model with stochastic volatility and propose a novel mixture of zero impact and sign restrictions that we impose on the cross-section of the data. Both shocks generate positive and significant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-á-vis the euro (trade channel). While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof. / Series: Department of Economics Working Paper Series

Magister Economicae - MEcon / A possible effect of quantitative easing (QE) undertaken by the United States of America (USA) Federal Reserve Bank (Fed) may have been an increase in capital flowing into emerging market economies (EMEs). The 2008 global financial crisis created an environment in which traditional monetary policies – cutting policy rates – became ineffective in stimulating growth. Faced with this policy environment, several high-income countries including the USA resorted to unconventional monetary policies notably QE, to grow their economies. While QE was effective in lowering interest rates in high-income countries, some argued that investors switched to higher yielding assets, mostly EME assets. Therefore, QE is perceived to have increased capital flows into EMEs. Using a dynamic panel data model with fixed effects this mini-thesis investigates empirically whether QE worked through unobservable channels to increase gross private capital inflows to Brazil, Russia, India, China and South Africa (BRICS) in the period 2000-2015. The study finds evidence in support of the view that QE increased capital inflows to EMEs. The results reveal that gross private capital inflows to the BRICS increased during the QE intervention period and that the increase was higher in the first period of QE than in subsequent QE periods. The empirical results also reveal differences in the way types of capital flows responded to QE; portfolio flows, and in particular equity flows were the most responsive to QE. / 2018-12-14