Discussion paper

DP16395 Financial ‘Side Effects’ of QE and Conventional Monetary Policy Compared

We explore the size of financial ‘side effects’ of QE relative to those of conventional monetary policy for the Euro Area, UK and US. Following previous work for conventional monetary policy we examine the effects on private credit imbalances, financial market risk and asset valuation. We adopt an agnostic Bayesian VAR approach, identifying QE and conventional monetary policy shocks with four different identification schemes and two different measures of unconventional monetary policy. We compare the size of each side effect by the amount of inflation generated by each policy, as all three of these central banks were targeting inflation during this time. The relative size of these effects is at the heart of the current debate about the financial stability and wealth inequality consequences of accommodative monetary policy. While both, conventional monetary policy and QE, generate some financial ‘side effects’, there is no statistical evidence that the effect of QE on these variables is consistently larger than the effect of conventional monetary policy.


Weale, M and T Wieladek (2021), ‘DP16395 Financial ‘Side Effects’ of QE and Conventional Monetary Policy Compared‘, CEPR Discussion Paper No. 16395. CEPR Press, Paris & London. https://cepr.org/publications/dp16395