Should we use central bank asset purchase announcements and sign restrictions to quantify quantitative easing?

The empirical literature lacks a consensus on how to model quantitative easing (QE) within the structural vector autoregressive (SVAR) framework. As agents may anticipate central bank balance-sheet variables, the use of asset purchase announcements has become a common practice. I show that results derived from such SVAR models, typically identified with sign restrictions, should be cautiously interpreted. Structural shocks deemed to identify QE give rise to spurious impulse response estimates. • This research letter revisits the use of asset purchase announcements by Weale and Wieladek (2016) to quantify quantitative easing. • Monte Carlo simulations and pre-QE sample evidence indicate that spurious results arise from this QE indicator. • The findings strongly suggest that the results of Weale and Wieladek (2016) are spurious.