Boneva, L., Elliott, D., Kaminska, I., Linton, O., McLaren, N. and Morley, B.

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

The Economic Journal

Vol. 132(684) pp. 2615-2643 (2022)

Abstract: 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: Corporate bonds, Market liquidity, Market-making, Quantitative easing

JEL Codes: G12, G23, E52, E58

Author links: Oliver Linton  

Publisher's Link: https://doi.org/10.1093/ej/ueac033

Cambridge-INET Working Paper Version of Paper: The Impact of Corporate QE on Liquidity: Evidence from the UK, Boneva, L., Elliott, D., Kaminska, I., Linton, O., McLaren, N. and Morley, B., (2019)