L’impact de la politique d’assouplissement quantitatif aux États-Unis, au Japon, au Royaume-Uni et en Europe
By Mthuli Ncube
In a recent Book I co-authored with Prof. Kjell Hausken on “Quantitative Easing and Its Impact in the US, Japan, the UK and Europe” , we analyze, empirically, the effects of quantitative easing (QE) on interest rates and the economies of the USA, Japan, the UK, and Europe.
Since the advent of the financial crisis in 2008, some of the world’s largest Central Banks, namely the US Federal Reserve (Fed), the Bank of England (BOE), the Bank of Japan (BOJ), and the European Central Bank (ECB), among others, have embarked on monetary easing or quantitative easing. This is an unorthodox way of pumping money into the economy and aiming to lower the long-term interest rates in order to combat a recession. Since interest rates in industrial countries had declined to near zero in the aftermath of the global crisis, the scope for further monetary easing through lower policy rates became very limited. Quantitative easing (QE) and other asset purchase programs have therefore been adopted under exceptional circumstances. Japan is credited as the first country that started implementing QE in 2001. But it was not until the 2008 financial crisis that Central Banks of developed countries started using QE regularly to stimulate their economies, increase bank lending, and encourage spending.
The real estate bubble which burst in 2007 in the USA caused the 2008 financial crisis, and the more recent Eurozone sovereign debt crisis have obliged leading Central Banks to opt for aggressive monetary actions such as QE in order to prevent financial instability. The USA introduced QE1 in 2008, QE2 in 2010, and “Operation Twist” (OT) in 2011, and more recently the third round of QE (QE3) in 2012, which consisted of a monthly $85-billion injection through the purchase of mortgage-backed securities and longer-term Treasury securities. The Fed buys government or other bonds and then makes this money available for banks to borrow, thereby expanding the amount of money circulating in the economy, which in turn reduces long-term interest rates. Of late, it has begun to unwiden the program as the “tapering” takes root at the beginning of 2014.
In the UK, the BOE incrementally raises the ceiling of its QE asset purchase program to £375 billion, most of which is used to purchase UK Government securities. In the Euro area, the ECB has undertaken a series of longer-term refinancing operations since 2008: two rounds of covered bond purchase programs in 2009 and 2011; an unlimited securities market program in 2010; and open-ended outright monetary transactions in 2012. In Japan, the Central Bank cumulatively increases the size of its comprehensive monetary easing to as much as ¥101 trillion by the end of 2012. More recently, the BOJ launched perhaps the boldest monetary easing in modern history with the intention to double the monetary base in two years through aggressively purchasing government bonds, exchange-traded funds, as well as real estate investment trusts. Thus, increasing the size of their balance sheets has become the primary means by which Central Banks in these economies have intervened to bring relief to the ongoing economic downturn. By adopting unconventional measures of monetary easing, Central Banks seek mainly to stimulate growth, bring down joblessness to reasonable levels and support their banking systems by pumping more money into the economy to boost spending. However, some critics worry that these measures would fuel inflation and encourage unbridled government spending.
The Fed’s QE3 is expected to widely affect global economies and this announcement caused euphoria in the financial markets, with stock prices reaching post-recession highs in the USA. In turn, emerging markets received these extraordinary monetary policy responses with skepticism. While Central Banks in developed economies have deployed monetary easing to ameliorate the impact of the recession, the collective magnitude of monetary easing may have unintended consequences in other countries, especially in emerging countries. As economies are more integrated, the implementation of QE in developed countries can cause excess flow of liquidity in emerging countries and inadvertently disrupt their currencies, exports, and inflation levels.
Kjell and I used an event-study methodology to analyze the impact of QE on interest rates. We then used large Bayesian vector auto-regression (BVAR) models to analyze the impact of QE on the wider economy.
The results clearly show that the unconventional monetary measures are effective policy options in supporting price stability. Inflation in the major economies would have been lower or more negative if the unconventional monetary policies had not been undertaken by their Central Banks. The results also suggest that the effect of QE on economic growth is rather limited. No significant effect of QE on GDP growth is found for the major economies, except for the UK where GDP growth would have been as much as 0.7 percentage points lower if the BOE had not implemented its unconventional monetary policies. Despite the failure of stimulating economic activities as a whole, our simulation results suggest that the unconventional monetary policies to some extent have a positive influence on industrial production in the USA, the UK, and Japan.
In addition, our analysis found that QE contributes to a reduction in unemployment in the USA and Japan, and a rise in inflation expectations in the USA, the UK, and Euro area. However, evidence of the QE’s effect on house prices, stock prices, consumer confidence, and exchange rates is mixed and thus inconclusive. It does seem monetary policy alone is not enough, without some structural reforms and other policy measures.
Professor Mthuli Ncube is the former Chief Economist and Vice-President of the African Development Bank, and holds a PhD in Mathematical Finance from Cambridge University, UK, on “Pricing Options under Stochastic Volatility”.