Assessment of the Efficiency of QE in Selected Countries – A TVP-VAR Approach
|Author:||Mgr. Denis Bandžak|
|Year:||2021 - summer|
|Leaders:|| PhDr. Michal Hlaváček Ph.D.
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:|
|Abstract:||This thesis applies time-varying parameter vector autoregression (TVP-VAR) model with
stochastic volatility to assess the effectiveness of quantitative easing in time for the Bank
of Japan, the European Central Bank, the Bank of England and the Federal Reserve
System between the global financial crisis and COVID-19 pandemic. We find pronounced
and statistically significant response of GDP and level of implied stock market volatility to
a QE shock whereas the response of CPI is feeble and statistically insignificant. We argue
that this does not necessarily imply that there is no effect of QE on CPI but rather that our
model was not able to detect it. We believe that this may be due to inflation expectations
channel which our model did not account for. This can be reassessed with a TVP-FAVAR
model which is more suitable for such an analysis as it can encompass a larger set of
variables. Moreover, apart from the US, we report increasing effectiveness of QE in time.
This is opposed by the researchers who believe that QE has rather decreasing effectiveness
in time because it is more efficient during economic distress and then its efficiency tends
to decrease during normal times. We explain this deviation by citing other unconventional
monetary tools such as credit easing, forward guidance or negative interest rate which
were added at later stages of the crisis and could have had stimulating effects on the
transmission of QE into the real economy.