Quantitative easing: a dangerous addiction? Contents

Summary of conclusions and recommendations

Bank of England independence

1.While the UK can be proud of the economic credibility of the Bank of England, this credibility rests on the strength of the Bank’s reputation for operational independence from political decision-making in the pursuit of price stability. This reputation is fragile, and it will be difficult to regain if lost. So far, the Bank—and indeed other central banks which have used quantitative easing—have retained the confidence of international markets. (Paragraph 28)

Impact of quantitative easing

2.Quantitative easing is particularly effective as a tool to stabilise financial markets. There is strong evidence that shows it is an effective monetary policy tool when it is deployed at times of crisis, when financial markets are dysfunctional or in distress. (Paragraph 49)

3.While the evidence on quantitative easing’s economic impact is mixed, we note that central bank research tends to show quantitative easing in a more positive light than the academic literature. We conclude, on balance, that the evidence shows quantitative easing has had limited impact on growth and aggregate demand over the last decade. To stimulate economic growth and aggregate demand, quantitative easing is reliant on a series of transmission mechanisms that operate primarily in and through financial markets. There is limited evidence to suggest that these increase bank lending or investment, or boost consumer spending by wealthy asset holders. (Paragraph 50)

‘Knowledge gaps’

4.The Bank of England’s understanding of quantitative easing’s effects and its transmission mechanisms are far from complete more than a decade on from the policy’s introduction. Given that quantitative easing has increasingly become a conventional monetary policy tool, we recommend that the Bank of England prioritises research on: (Paragraph 55)

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