- In eight of the 12 cases analyzed, the impact on the economy was negative
- In three cases, it was completely neutral
- It only worked in the case of the so-called QE1 in the US, and fundamentally because the starting base was very low and the US became a major oil and gas producer.
“How do you evaluate if QE and negative interest rates are working? When I discuss this with clients, I sometimes get the response that QE and negative interest rates are working well because the payment systems are running and the financial system still functions. But the issue is not if computers can deal with negative interest rates. The issue is if QE and negative rates have been supporting the economy.The chart below looks at QE and negative rates across countries and the impact it has had on ISM and PMI across countries, from start to end of each unconventional policy. The conclusion is that US QE1 had an impact but in all other cases the impact of QE and negative interest rates has been insignificant. And in 8 out of 12 cases, the economic impact has been negative.
Once again, there is too big of a burden on monetary policy and it is time for fiscal and structural policy to step up and begin to support GDP growth.”
The European case is truly amazing (growth vs central bank balance sheet):
But the Japanese one is simply staggering:
Central Banks Balance Sheet vs Global GDP
Last two charts via @dailyeconomist
A very thorough analysis here: “Current Federal Reserve Policy Under the Lens of Economic
History: A Review Essay”.
“Further there is no work that establishes a link from QE to the ultimate goals of the Fed, inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation. For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2% inflation target. Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation”.
Merrill Lynch also shows the poor QE results:
Daniel Lacalle is a PhD in Economics and author of “Life In The Financial Markets” and “The Energy World Is Flat”