An Unconventional Approach to Evaluate the Bank of England’s Asset Purchase Program

  • Matthias NeuenkirchEmail author
Research Article


Empirical papers analysing the transmission of (unconventional) monetary policy typically rely on a vector autoregressive framework. In this paper, I complement these studies and employ a matching approach to examine the impact of the Bank of England’s asset purchase program on macroeconomic quantities in the UK. My sample covers the period March 2001−December 2015 and five small open inflation targeting economies. Using entropy balancing, I create a synthetic control group comprised of credible counterfactuals for the sample of observations subject to quantitative easing (QE). My key results indicate that a 100 bn GBP increase in QE has a significant and positive effect on GDP growth with a peak effect of 0.66−0.69 percentage points (pp) after 30 months. The same increase leads to a reduction in the inflation gap with a peak effect between −0.77 and −0.94 pp after 30 months. An in-depth analysis reveals that the latter finding is not driven by the choice of the empirical methodology. In contrast, I find that the returns on QE in the UK are decreasing (i) over time and (ii) with the volume of QE. Consequently, monetary policymakers should be aware of the fact that the returns on QE might be non-linear and that QE eventually could have detrimental effects.


Asset purchases Bank of England Entropy balancing Matching Quantitative easing Treatment effects Unconventional monetary policy 

JEL Classification

E52 E58 



I wish to thank Yesmine Arousse for excellent research assistance. I am also indebted to two anonymous referees, Tobias Kranz, Florian Neumeier, Peter Tillmann, Arina Wischnewsky, and participants of the Money, Macro and Finance Group 49th Annual Conference in London for their helpful comments on earlier versions of the paper. Financial support from the Deutsche Bundesbank, Hauptverwaltung in Rheinland-Pfalz und dem Saarland is gratefully acknowledged.


  1. Angrist JD, Jorda O, Kuersteiner GM (2018) Semiparametric estimates of monetary policy effects: String theory revisited. J Bus Econ Stat 36(3):371–387Google Scholar
  2. Bauer MD, Rudebusch GD (2014) The signaling channel for federal reserve bond purchases. Int J Cent Bank 10(3):233–289Google Scholar
  3. Baumeister C, Benati L (2013) Unconventional monetary policy and the great recession: Estimating the macroeconomic effects of a spread compression at the zero lower bound. Int J Cent Bank 9(2):165–212Google Scholar
  4. Breedon F, Chadha JS, Waters A (2012) The financial market impact of UK quantitative easing. Oxf Rev Econ Policy 28(4):702–728Google Scholar
  5. Christensen JHE, Rudebusch GD (2012) The response of interest rates to US and UK quantitative easing. Econ J 122(564):F385–F414Google Scholar
  6. Cloyne J, Hürtgen P (2016) The macroeconomic effects of monetary policy: a new measure for the United Kingdom. American Econ J: Macroeconomics 8(4):75–102Google Scholar
  7. Diamond A, Sekhon JS (2013) Genetic matching for estimating causal effects: A general multivariate matching method for achieving balance in observational studies. Rev Econ Stat 95(3):932–945Google Scholar
  8. Gambacorta L, Hofmann B, Peersman G (2014) The effectiveness of unconventional monetary policy at the zero lower bound: A cross-country analysis. J Money, Credit, Bank 46(4):615–642Google Scholar
  9. Goodhart CAE, Ashworth JP (2012) QE: A successful start may be running into diminishing returns. Oxf Rev Econ Policy 28(4):640–670Google Scholar
  10. Hainmueller J (2012) Entropy balancing for causal effects: A multivariate re-weighting method to produce balanced samples in observational studies. Polit Anal 20(1):25–46Google Scholar
  11. Joyce MAS, Lasaosa A, Stevens I, Tong M (2011a) The financial market impact of quantitative easing in the United Kingdom. Int J Cent Bank 7(3):113–161Google Scholar
  12. Joyce M, Tong M, Woods R (2011b) The United Kingdom’s quantitative easing policy: Design, operation, and impact. Bank of England Quarterly Bulletin 2011Q3, 200–212Google Scholar
  13. Joyce M, Miles D, Scott A, Vayanos D (2012) Quantitative easing and unconventional monetary policy – an introduction. Econ J 122(564):F271–F288Google Scholar
  14. Kapetanios G, Mumtaz H, Stevens I, Theodoridis K (2012) Assessing the economy-wide effects of quantitative easing. Econ J 122(564):F316–F347Google Scholar
  15. Lin S, Ye H (2007) Does inflation targeting really make a difference? evaluating the treatment effect of inflation targeting in seven industrial countries. J Monet Econ 54(8):2521–2533Google Scholar
  16. Meaning J, Zhu F (2011) The impact of recent central bank asset purchase programmes. BIS Quarterly Review December 2011:73–83Google Scholar
  17. Martin C, Milas C (2012) Quantitative easing: A sceptical survey. Oxf Rev Econ Policy 28(4):750–764Google Scholar
  18. Neuenkirch M, Tillmann P (2016) Does a good central banker make a difference? Econ Inq 54(3):1541–1560Google Scholar
  19. Romer CD, Romer DH (2004) A new measure of monetary shocks: Derivation and implications. Am Econ Rev 94(4):1055–1084Google Scholar
  20. Sims CA (1980) Macroeconomics and reality. Econometrica 48(1):1–48Google Scholar
  21. Uhlig H (2005) What are the effects of monetary policy on output? results from an agnostic identification procedure. J Monet Econ 52(2):381–419Google Scholar
  22. Weale M, Wieladek T (2016) What are the macroeconomic effects of asset purchases? J Monet Econ 79:81–93Google Scholar
  23. Williamson SD (2017) Quantitative easing: How well does this tool work? J Regul Econ 2017Q3:8–14Google Scholar
  24. Wu JC, Xia FD (2016) Measuring the macroeconomic impact of monetary policy at the zero lower bound. J Money, Credit, Bank 48(2–3):253–291Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of Trier and CESifoTrierGermany

Personalised recommendations