dealtn wrote:To be clear the commercial banks are not selling Gilts to the Bank of England, other than in a transmission sense.
Yes. I used that example as it's the simplified case that the other examples ultimately resolve down to (if you follow all the consequential double-entry in a real-world example).
eg. as you state:
Now all of these "bank account balances" sit at commercial banks, and if that commercial bank doesn't have a reserve arrangement with the Central Bank, it will have a bank account with another, that does. So ultimately all this increased "bank account balances" accumulate at commercial banks reserve accounts with the Central Bank.
What is important here is the myth that the Central Bank is buying Gilts from commercial banks who in turn deposit the "cash" created back at the Central Bank, so "nothing" is created, and QE doesn't work as it's a circular transaction. There is a whole transmission system, with potential real assets, real cash, real multiplier effects along the way.
QE worked (works?) but the magnitude of it, and the lack of inflation created, is hard to quantify, there being no observable control experiment in parallel to know what would have happened without it. The thinking is that those selling Gilts, swapped them in practice for alternative financial assets. Prices of Gilts went up, but the "proceeds" went into other financial assets which in turn had price rises. However the real world transmission mechanism of this "wealth effect" is weak. The main sellers, pension funds etc. didn't pass on this newly created wealth since their payments stretch way into the future. Individuals whose share portfolios benefitted didn't spend this increased wealth in the real economy, or did so only partially.
There's debate about the impact of it, with the "obvious" direct ones being lower yields (rates) / higher asset prices, but little other real economy transmission. Probably a bit of a psychological effect, modestly improving animal spirits. As well documented, the wealth effects are limited because those who most benefited - investors like us - simply saw larger portfolio balances but then spent very littleif any of it. Little leakage from the "financial" economy to the "real" economy that most people inhabit.
Beyond that, and as you say, without the counterfactual it's hard to judge, but it appears to be modest in impact, but better than nothing. Regarding inflation, it was possibly even disinflationary.
Certainly Japan's enormous QE program appears to illustrate the relative ineffectiveness of it in producing much in the way of inflation.