The impact of the Federal Reserve and Bank of England’s large-scale asset purchases in 2008 and 2009 on economic growth may be uncertain, but it is clear their intervention in the global crises helped fend off the risk of deflation, according to the Bank for International Settlements (BIS).
The central banks’ unconventional policies of massive purchases of bonds and other securities – known as quantitative easing – has tripled and quadrupled their balance sheets and triggered fears of inflation and concern over how these programs will be unwound.
In its latest quarterly review, BIS’ Boris Hofman and Feng Zhu analyse the impact on inflation expectations from the BOE and Fed asset purchase programs, from the announcement of the central bank’s plans to their implementation.
As the financial crises spread following the collapse of Lehman Brothers in September 2008, inflation expectations plunged, raising the spectre of deflation. By mid-2009 these fears heightened as consumer prices dropped in both the U.S. and UK.
But the announcement of the asset purchase programs on both sides of the Atlantic in late 2008 and early 2009 lead to a rapid reversal of inflation swap rates towards pre-crises levels in the course of 2009, the authors write.
“This suggests that asset purchase programmes have made an important contribution to fending off deflation risks,” they wrote, adding that other factors, such as stimulus packages and low policy rates may also had an effect that were not captured by their analysis.
The central banks’ unconventional policies of massive purchases of bonds and other securities – known as quantitative easing – has tripled and quadrupled their balance sheets and triggered fears of inflation and concern over how these programs will be unwound.
In its latest quarterly review, BIS’ Boris Hofman and Feng Zhu analyse the impact on inflation expectations from the BOE and Fed asset purchase programs, from the announcement of the central bank’s plans to their implementation.
As the financial crises spread following the collapse of Lehman Brothers in September 2008, inflation expectations plunged, raising the spectre of deflation. By mid-2009 these fears heightened as consumer prices dropped in both the U.S. and UK.
But the announcement of the asset purchase programs on both sides of the Atlantic in late 2008 and early 2009 lead to a rapid reversal of inflation swap rates towards pre-crises levels in the course of 2009, the authors write.
“This suggests that asset purchase programmes have made an important contribution to fending off deflation risks,” they wrote, adding that other factors, such as stimulus packages and low policy rates may also had an effect that were not captured by their analysis.
