What is the evidence on quantitative easing?

From the comments, Stephen Williamson quotes/writes:

“…but it’s not nearly a close enough engagement with the evidence, which does pretty clearly show some short-run effects [from QE] are still operating, even if those effects are diminishing with time.”

I’d be curious to know what “evidence” it is that “clearly” shows this. My guess is you’re making this up.

In the first part he is quoting me, the “I’d be curious” paragraph is his own words.  Overall, I would say here that the word “guess” is an accurate, albeit unfortunate description of how he is assessing the relevant evidence.

The background story is that Steve is arguing that QE should be deflationary rather than expansionary.  What does the evidence say?

Here are Krishnamurthy and Vissing-Jorgensen on the United States (pdf):

…evidence from inflation swap rates and TIPS show that expected inflation increased due to both QE1 and QE2…

On Japan, here are Girardin and Moussa:

…we propose new empirical evidence supporting the ability of quantitative easing to provide stimulation to both output and prices.

Or try Joyce, Miles, Scott, and Vayanos, from The Economic Journal:

…a growing literature has begun to provide estimates of the macroeconomic effects. In one of the first studies of this nature, Baumeister and Benati (2010) estimate a time-varying parameter structural VAR to investigate the macroeconomic impact of lower long-term bond spreads during the 2007–09 recession period. In all, the countries they analyse – the US, Euro area, Japan and the UK – they find a compression in the long-term yield spread exerts a powerful effect on both output growth and inflation and their counterfactual simulations indicate that unconventional monetary policy actions in the US and UK averted significant risks both of deflation and of output collapses.

p.F285 of that paper discusses some other literature in detail, again indicating that QE increases the rate of price inflation.  This piece is also useful for showing how empirical studies of QE provide decent evidence for asset segmentation and “preferred habitat” theories of bond markets (which responds to another of Steve’s points).

Or try Chung, et.al. from the Fed (since published in the JMCB):

…we find that the asset purchases have probably prevented the U.S. economy from falling into deflation.

This is all consistent with the observation from Scott Sumner:

For God’s sake the dollar fell by 6 cents against the euro on the day QE1 was announced! Does anyone seriously think a 6 cent depreciation in the dollar is deflationary?

There is plenty of (justified) debate as to how strong these effects are, and we all know the difficulties of doing proper empirical work in macroeconomics, and on top of that the time to produce research means these papers are not analyzing the very latest data.  But I cannot find a serious — or for that matter non-serious — empirical study suggesting that QE is deflationary in its impact.

Addendum: David Glasner makes a very good point: “…if Williamson’s analysis is correct, the immediate once and for all changes should have been reflected in increased measured rates of inflation even though inflation expectations were falling. So it seems to me that the empirical fact of observed declines in the rate of inflation that motivates Williamson’s analysis turns out to be inconsistent with the implications of his analysis.”


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