A new McKinsey study has crossed my desk, “QE and ultra-low interest rates: Distributional effects and risks.” It offers a few estimates:
1. As a result of QE, governments in the US, UK, and Eurozone have benefited by about $1.6 trillion in lower debt service costs and profits remitted from central banks.
2. Households in those same countries have lost about $630 billion in reduced interest income.
3. Non-financial corporations have gained about $710 billion through lower debt service costs.
I would urge extreme caution in interpreting these or indeed any such results, as the nature of the no-QE-weaker-AD alternative scenario is hard to spell out and in any case would impose losses of its own. “Never reason from a pecuniary externality change” a wag once told me. Still, you can use those numbers as one example of a very rough “apply ceteris paribus assumptions to a macro problem” estimate.
One interesting takeaway from this report is that European life insurance companies may be in persistent financial trouble. Many life insurance policies are written for 40 or 50 years but the companies cannot find assets to match those durations. As the bonds they hold mature, they cannot easily reinvest in safe assets with yields comparable to what they are guaranteeing their policyholders. For instance some German life insurers are guaranteeing a return of 1.75 percent, but German ten year Bunds were yielding only about 1.54 percent (the report is from November). The insurance companies will either steadily lose money or be forced to seek out riskier investments, which is also to some extent prohibited by law and regulation. Here is one relevant Moody’s report, which explains why German life insurance companies are especially vulnerable. There are related readings here.