The impact of QE on liquidity: evidence from the UK Corporate Bond Purchase Scheme

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 March 2019

Staff Working Paper No. 782

By Lena Boneva, David Elliott, Iryna Kaminska, Oliver Linton, Nick McLaren and Ben Morley

In August 2016, the Bank of England (BoE) announced a Corporate Bond Purchase Scheme (CBPS) to purchase up to £10 billion of sterling corporate bonds. To investigate the impact of these purchases on liquidity, we create a novel dataset that combines transaction-level data from the secondary corporate bond market with proprietary offer-level data from the BoE’s CBPS auctions. Identifying the impact of central bank asset purchases on liquidity is potentially impacted by reverse causality, because liquidity considerations might impact purchases. But the offer-level data allow us to construct proxy measures for the BoE’s demand for bonds and auction participants’ supply of bonds, meaning that we can control for the impact of liquidity on purchases. Across a range of liquidity measures, we find that CBPS purchases improved the liquidity of purchased bonds.

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