The Impact of Corporate QE on Liquidity: Evidence from the UK

Tuesday 1st March 2022
The Economic Journal, forthcoming
Boneva, L., Elliott, D., Kaminska, I., Linton, O., McLaren, N. and Morley, B.
In August 2016, the Bank of England (BoE) announced a Corporate Bond Purchase Scheme (CBPS) to purchase up to $10bn 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.
Keywords
Quantitative easing
Market liquidity
Market-making
Corporate bonds
G12
G23
E52
E58
Themes
empirical