The Bank for International Settlements’ Quarterly Review featured two articles by one of the School’s PhD students, Jack Meaning, that dealt with unconventional monetary policies.
The first, published in December received international press coverage and was discussed on the front page of the Financial Times. Jack, with co-author Feng Zhu (BIS), estimates the financial market impact of the large scale asset purchase programmes carried out by the Federal Reserve and the Bank of England since the crisis, which have become more commonly known as quantitative easing. Using a range of methods the paper finds these programmes significantly lowered financial yields.
The second paper, published on 12 March, discusses the potential for further monetary stimulus via a ‘twist’ style operation in which the central bank sells assets at the short end of its portfolio to fund purchases of longer dated assets leaving the overall size of their balance sheet unchanged. By doing this the central bank can withdraw maturity from the privately available supply and twist the yield curve, lowering yields at longer maturities relative to the short end.
Using the US as a case study, the article finds significant potential for these initiatives, and more generally finds further support for asset purchases as a tool for monetary policy. However, it does raise issues of fiscal-monetary co-ordination.
These two articles form the basis of a forthcoming and more comprehensive paper on the effectiveness of asset purchases as a tool for monetary policy, which Jack will present at the Bank of England next month.