From QE to QT: The Policy Framework

Our proposal, in brief, is that the Bank of England should sell to the commercial banks in a single operation, a very large amount of newly issued short and medium-dated government securities in exchange for a large fraction of the reserve balances at the Bank of England which have accrued as a result of quantitative easing (QE) operations conducted since 2009.

Pub. Date
01 August, 2022
Pub. Type

Main points

  • Quantitative Easing which aimed to transfer duration risk from the market to the government/central bank, was larger in amount and lasted longer than anyone had expected.
  • Quantitative Tightening (QT) requires different government/central bank arrangements.
  • The eventual budgetary costs of central bank asset purchase programmes will also be one element in any subsequent assessment of the wisdom of such central bank operations and associated Treasury financing.
  • QE and the transition to QT could have material consequences for the earnings and balance sheets of banks
  • The best-known precedents for monetary policies pursued over such a prolonged period having such a big impact on the balance sheets of governments and of the banks go back many decades.