Quantitative Easing in theory and in practice: a critical interdisciplinary analysis

Quantitative Easing was a controversial policy implemented widely in advanced economies in response to the Global Financial Crisis but has continued long past the immediate crisis. Ben Bernanke famously made the startlingly frank and controversy-highlighting statement in 2014 that QE does not work according to mainstream macroeconomics theory. This thesis therefore elucidates a perceivable knowledge gap by defining the theory-policy framework that dominated macroeconomic policy before and after the GFC, which indicates that central bank balance sheet quantity policies like QE would have no effect, therefore does not recommend nor proscribe QE. This thesis then uses interdisciplinary analysis, framed within the emerging academic field of ‘critical macro finance’, to provide novel insight into three areas: firstly, in the decades prior to 2008 central bank balance sheets were widely maintained at minimal quantities, which this thesis finds cannot be understood through the dominant macroeconomics theory-policy framework alone and can only be understood by reference to historical and political economy factors. Secondly, literature on how central banks might performatively influence monetary stability through base rates and signalling on minimal quantities of balance sheet facilities, so justifying small balance sheet quantities, is found to be based on technical and socio-linguistic theories of performativity rather than macroeconomics alone. Finally, the justifications for QE programmes of balance sheet expansion given by central banks after 2008 are found to draw on banking theory literature not macroeconomics literature or models. This thesis therefore demonstrates pluralism in central bank policy practices and the role of macroeconomics being much smaller than perceived by academic economists. Such practices might challenge the scientific anchoring, coherence and democratic legitimacy of monetary policy and of independent central banks, but this thesis argues that these findings instead are important in demonstrating the 'art and science' necessary in real-world economic policy making in the complex and uncertain nature of reality.