The Transmission Mechanism for Quantitative Easing Evidence from the United States at the Zero Lower Bound

Since November 2008, quantitative easing (QE) has become the workhorse of the US monetary policy to create accommodative conditions beyond the short-term interest rate. This paper reviews the implementation of unconventional monetary policy measures undertaken by the Federal Reserve since 2008, with a particular focus on QE, and presents an overview of the theories on the transmission mechanism underlying traditional monetary policy in general as well as those relative to QE. Moreover, this paper offers an empirical analysis of two transmission channels through which QE is expected to influence interest rates, namely, the portfolio balance channel and the liquidity channel. Focusing exclusively on US data, there is not enough statistical evidence found in favour of either channel after accounting for a trend.