Abstract
This paper investigates the effectiveness of the ‘quantitative easing’ policy, as officially implemented by the
Bank of England since March 2009. A policy of the same name had previously been implemented in Japan,
which serves as a reference. While the majority of the previous literature has measured the effectiveness of
QE by its impact on interest rates, in this paper the effectiveness of all Bank of England policies, including QE,
is measured by their impact on the declared goal of the QE policy, namely nominal GDP growth. Further,
unlike other works on policy evaluation, in this paper we use the general-to-specific econometric modelling
methodology (a.k.a. the ‘Hendry’ or ‘LSE’ methodology) in order to determine the relative importance of Bank
of England policies, including QE. The empirical analysis indicates that QE as defined and announced in March
2009 had no apparent effect on the UK economy. Meanwhile, it is found that a policy of ‘quantitative easing’
as defined in the original sense of the term (Werner, 1995c) is supported by empirical evidence: a stable
relationship between a lending aggregate (disaggregated M4 lending, singling out bank credit for GDP
transactions) and nominal GDP is found. The findings imply that the central bank should more directly target
the growth of bank credit for GDP-transactions, which was still contracting in late 2011. A number of
measures exist to boost it, but they have hitherto not been taken.

JEL classifications:
E41
E52
E58
Keywords:
Central banking
Credit creation
General-to-specific methodology
Intermediate targets
Monetary policy
Operating tools
Qualitative easing
Quantitative easing
QE
Zero bound