Quantitative Easing and Financial (In)Stability

Many central banks have introduced quantitative easing (QE) as a new policy tool where they massively buy bonds from market participants to provide liquidity to the market, reduce the cost of capital and ultimately foster economic growth. Although such monetary policy measures by the Federal Reserve and the Bank of Japan seem to have had the desired effect in the home market, there are still many open questions about the effectiveness of QE with respect to its global impact. These policies (and unwinding them later on) have an impact on the stability of financial markets and financial institutions, not only in industrialized countries but also in emerging markets.

This project aims to analyze the potential effects of QE, in particular on the pricing of financial assets, the risk taking by banks, and the spillover effects to emerging markets. The project proposes a new approach to address the topic from a banking and finance perspective.

Key questions:

  • How much of the current recovery can actually be attributed to monetary policy intervention, and, in particular, which tool was the most effective?
  • What are the consequences of the enormous monetary expansion for financial markets stability? How does it affect risk-taking by banks, and systemic risk more generally? Are there spillover effects to financial institutions and markets in emerging economies, like India, China, or some African countries?
  • If some day central banks want to reverse their current extremely lax policy stance, what will happen to securities markets and the banking system? Which withdrawal symptoms should we expect, in terms of negative economic growth and financial instability around the world?

News & Activities

Workshop in Japan

Project researchers discussed their work on 30-31 January at Wasedy University [more]

Project Team

Junior Researchers
Xu Liu
Max Nagel
Marius Birk
Jun Li
Junior Researchers
Davide Tomio
Senior Researchers
Linlin Niu
Junior Researchers
Zhen Huang
Mucai Lin
Zhiwu Hong
Senior Researchers
Co-Pierre Georg
Junior Researchers
Tina Koziol
Allan Davids
Jesslyn Jonathan
Senior Researchers
Jun Uno
Junior Researchers
Reiko Tobe

Research Projects

QE impact on financial markets ...

... in industrialized countries

... in emerging countries

QE impact on financial institutions ...

... in industrialized countries

... in emerging countries

Project Publications

Published Paper

Author/s Title Published
Ray-Bing Chen, Ying Chen, Qiang He, Linlin Niu Sparse-Group Independent Component Analysis with Application to Yield Curve Prediction
forthcoming in Computational Statistics and Data Analysis