Graduation Year
2024
Date of Submission
12-2024
Document Type
Campus Only Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Richard Burdekin
Terms of Use & License Information
Abstract
The COVID-19 pandemic prompted unprecedented monetary interventions globally, with many central banks implementing quantitative easing to stabilize financial markets and stimulate economic recovery. As many central banks transitioned to quantitative tightening in 2022 to combat inflationary pressures, the impacts of these policies on financial and economic performance remain a critical area of study. Using fixed effects panel regression models, this thesis examines the impact of quantitative easing and tightening on stock market performance in 11 global regions from 2020 to 2024. Quantitative easing and tightening are proxied by central bank total assets, the monetary base, and broad money supply. The regression models incorporate a 2020 dummy variable, an interaction term between the 2020 dummy variable and each proxy, as well as a restricted sample from 2021-2024. These models are applied to both the full-region sample and a subset restricted to advanced economies. The results reveal that broad money supply consistently exerts the strongest positive impact on stock market performance across all regions and time periods, illustrating the importance of accessible liquidity in driving financial market gains. The monetary base also displays positive significance, particularly during the quantitative tightening period, suggesting that direct liquidity injections into the banking system support stock market growth. By contrast, central bank total assets are insignificant for all specifications, except in advanced economies, where their deeper financial markets amplify the effects of central bank balance sheet expansions. Notably, the 2020 dummy variable is positively significant across all regression specifications and the interaction terms between this dummy variable and each proxy are consistently insignificant, highlighting that the unique pandemic conditions of 2020 independently drove positive stock market performance with no amplified effect tied specifically to any proxy. Additional regressions with different economic indicators as dependent variables provide supplementary insight into quantitative easing’s broader economic impacts. These results reveal that quantitative easing’s ability to influence real economic outcomes depends on the transmission of liquidity beyond the banking system to households and businesses, with broad money supply again proving to be the most effective channel. As a whole, this paper’s findings show that advanced economies are impacted slightly more from these unconventional monetary interventions and emphasize the importance of broad-based liquidity for achieving positive stock market performance.
Recommended Citation
Arimilli, Nathan, "The Impact of Quantitative Easing on Stock Market Indices During and After the Pandemic: A Comparative Study" (2024). CMC Senior Theses. 3731.
https://scholarship.claremont.edu/cmc_theses/3731
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.