Quantitative Easing (QE) has been a focus of American and British monetary policy since 2008. It largely continues to this day, with some modifications. Other central banks from Japan to Switzerland are following somewhat similar policies. However, recent research suggests that the main result of the policy is to push up stock prices without necessarily impacting the actual economy. If true, this is a problem since central bankers may have inadvertently triggered an asset price bubble without doing much to positively impact the metrics that they are typically targeting such as unemployment, growth and inflation.
The Research
In their paper titled, Did Quantitative Easing only inflate stock prices? Researchers from Henley Business School and the University of Reading explored the impacts of QE policies from central banks. They do this through building an economic model to capture the U.K. and U.S. experience with QE over recent years.
Of course, determining linkages from monetary policies is complex, but there is now at least a decade of data across countries which makes determining the effects a little easier. They find that though QE may have improved employment, it hasn’t done much else for the real economy. Also, in addition to pushing up stock prices QE may also have reduced volatility in the stock market and improved liquidity.
A Bubble?
If QE has created a stock-price bubble it’s a very long-lasting one. For example this piece from the UK’s Guardian newspaper outlines the arguments. Namely, that valuations are at excessive levels and growth is mediocre at best. However, the piece was written in 2014 and even despite extreme pandemic-related volatility in the interim, the bubble hasn’t burst yet almost 7 years later. Though equally, critics could point out that though any bubble hasn’t yet ended, nor has QE.
Nonetheless, the researchers argue that more could be done to make sure that QE targets the real economy. If the central banks are going to massively increase their balance sheets then it is perhaps more useful if the resulting spending goes into projects that help the real economy, rather than just boost stock prices. Of course, if rising stock prices had coincided with gains for the real economy, that would be more beneficial, but it is not the conclusions the researchers come to.
Economic models such as this are challenging, because correlation is not the same as causation and though we now have more of a historical perspective on the impacts of QE, the fact that QE hasn’t really ended means we perhaps still don’t know the full story. If and when QE should unwind, we may be able to better form a view as to its full impact. For now, that seems unlikely and it does appear that though the economic impact may be mixed, QE is perhaps one contributor to the strong run that we’ve seen in markets over recent years.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
