Edited by Hassan Bougrine and Louis-Philippe Rochon
Chapter 12: The political economy of quantitative easing and the Fed: who gained, who lost, and why did it end?
This chapter studies the political economy of the Federal Reserve’s ‘quantitative easing’ (QE) policy by examining which business sectors of the US economy were expected to gain and which ones were expected to lose as a result of QE. The authors carry out an event study to estimate stock-level cumulative abnormal stock returns around the announcement windows for all three rounds of QE. Their results indicate that a broad subset of the US economy was expected to benefit from the first two rounds of QE, with large firms experiencing greater returns. However, the expected gains appear to have decreased over each round of QE. By QE3, only a few sectors, including some subsectors of finance, were expected to benefit, while a non-trivial set of sectors were expected to be harmed. The authors conjecture that this ‘QE fatigue’ among investors may help explain the Fed’s decision to end QE in 2014.
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