The first two rounds of gilt-buying both successfully boosted the supply of broad money, the Bank’s quarterly bulletin showed, potentially lifting growth. But the fraction of purchases that leaked out of the transmission grew from 39 per cent to 44 per cent, the paper said.
However, by showing that leakage had only edged up, this data was more supportive of the power of quantitative easing (QE) than November comments made by Charlie Bean, deputy governor of the Bank, responsible for monetary policy.
Bean had said that though QE could still influence interest rates across the economy, the effect on output could be very weak while there was such uncertainty over the future path of demand.
But the research paper suggested the programme was boosting demand through impacting broad money – since approximately 56 per cent of the funds were getting through.
“For QE to work, the broad money created by asset purchases should flow through to households and companies and help finance a higher level of spending in the economy,” the paper read, concluding that this did happen.
And this effect continued into the third round of purchases, the paper said, though that period was not directly covered in the data.
“The pickup in broad money growth during the latest round of asset purchases would also appear to indicate a positive effect,” the authors wrote, connecting the latest round with the previous, larger monetary injections.
One thing QE failed to do was invigorate lending, the paper noted, but it stressed that this was not the policy’s purpose.