Is it Real? The Portfolio Balance Channel in Action and its Potential Consequences
To work out the potential response of the stock market to a QE shock of similar order to that of 2020 we need to compute the impulse response functions from an estimated VAR. The dataset from January 2008 to December 2020 covering the period pre, during and post financial QE response for both the UK and the US, is used for estimation. This follows closely both Joyce et al. (2011) and Shah et al. (2019), extending their analysis into more recent events with wider implications.