QE Works But Not Forever, BIS Study Tells Central Banks


The benefits of central banks pumping money into the economy by buying securities diminish over time, according to a BIS paper. That’s the conclusion of a Bank for International Settlements Working Paper by Henning Hesse, Boris Hofmann and James Weber, who compared the effects of the asset purchases in the U.S. and the U.K. conducted between 2008 and mid-2011 with those thereafter. While the earlier actions significantly helped the economy, they said, the subsequent ones had little or no impact. The issue is a topical one for central banks as they work out how to exit the emergency stimulus policies they imposed after the global financial crisis. The European Central Bank has slowed its bond purchases but not yet decided on a definite end-date, while the Federal Reserve is delicately shrinking its balance sheet.  The decreasing impact of quantitative easing might be because investors increasingly priced in the bond purchases before they were actually announced, the paper suggests. While QE had “significant” positive effects on real gross domestic product and the consumer price index for the period until June 2011, thereafter the effects were “often not statistically significantly different from zero.” …

Read more : Bloomberg, 21.12.2017