The effects of quantitative easing on the volatility of the gilt-edged market

- We model the effects of QE on the volatility of returns to individual gilts.
- QE neutralized the six fold increase in volatility seen during the financial crisis.
- The volatility of longer term bonds reduced more quickly than for shorter term bonds.
- Shorter term bonds were more sensitive to QE market interventions.
- Our results are consistent with the expectation transmission channel of QE.

We model the effects of quantitative easing on the volatility of returns to individual gilts, examining both the effects of QE overall and of the specific days of asset purchases. The action of QE successfully neutralized the six fold increase in volatility that had been experienced by gilts since the start of the financial crisis. The volatility of longer term bonds reduced more quickly than the volatility of short to medium term bonds. The reversion of the volatility of shorter term bonds to pre-crisis levels was found to be more sensitive to the specific operational actions of QE, particularly where they experienced relatively greater purchase activity.