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Don't Just Hold It, Keep Buying Is the Recipe for Successful QE

  • BOE economist blog suggests large balance sheets do little
  • ECB policy makers have raised debate over future of QE program
A stack of 50, 20 and 10 euro notes is arranged for a photograph inside a Travelex store, operated by Travelex Holdings Ltd., in London, U.K., on Wednesday, March 6, 2013. The U.K. currency weakened against all except one of its 16 major counterparts as 11 of the 39 economists surveyed by Bloomberg News predict the central bank will tomorrow increase its asset-purchase target to at least 400 billion pounds ($603 billion) from the current 375 billion pounds.
Photographer: Simon Dawson
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Central bankers across the globe have lauded quantitative easing, the crisis tool that they say averted outright deflation. Now a Bank of England staff blog suggests policy makers should resist the temptation to keep the bloated balance sheets they’ve acquired.

Economist Richard Harrison’s study finds that QE’s stimulus comes from buying assets, rather than from owning them. In a post on the BOE’s Bank Underground blog on Monday, he says that’s due to an “expectations channel,” whereby bond investors recognize the central bank will start purchases when it runs out of room to cut rates and react accordingly, pushing down yields.