Medium term treatment and side effects of quantitative easing: International evidence

We use a cross-country sample of monthly observations for quantitative easing (QE) treatments in order to study the causal effect of such policies on a large set of economic and financial outcome variables. We address potential endogeneity by re-randomising the sample and applying the augmented inverse probability weighting (AIPW) estimator. Our results show that QE policies do affect the central bank balance sheet and asset prices, in particular long term yields, equity prices and exchange rates in the expected direction. Most importantly, we find that QE policies lead to a sustained rise in the CPI and in inflation expectations. However, our findings suggest that the main transmission channel does not appear to be stronger aggregate demand impacting inflation through the Phillips curve, but rather exchange rate depreciation. Finally, we do not find any evidence for side effects and increases in risk taking following QE, with real house prices and real credit not increasing or falling, and no downward effect on stock market volatility.