Jonathan

Research question:#

  • Impact of Quantitative easing on:
    • Economy (Economic Growth)
    • Financial Markets (Stock prices)
    • (Possible) divergence (convergence) of the two
  • Very well-formulated research question
    • To answer it convincingly will probably be more difficult!

Theoretical framework:

  • Blanchard et al. (2013) Macroeconomics

    • AS-AD Model
    • IS-LM Model
    • z-lib.org

  • You have to describe the literature, arguing how:

    • QE affects financial markets
      • Choose aspects of financial markets which you think are relevant
      • Back it up by good arguments
    • QE affects economic growth
    • Financial markets in turn affect economic growth

  • All of the channels are implied in your hypotheses

    • Empirically, it means that you have to do some sort of mediation analysis
    • Explain why exactly you expect divergence between financial sector growth and economic growth

Methodology:

  • There are also other empirical challenges to arrive at a precise and unbiased estimate of the influence of QE
    • Many macroeconomic variables at time $t$ are constrained by their values at time $t-1$.
    • There are methods that deal with it (VAR regression, dynamic panel methods)
    • There are also spatial correlations and many other confounders that have to be taken into account
    • Variation in QE policies can also provide you with so-called synthetic controls, a method attempting to compare a country’s trajectory to a counterfactual without quantitative easing
      • Might be worthwhile to look in to
  • Bottom-line: “standard” OLS regressions will probably not do, more advanced panel methods are probably more appropriate (but we’ll see later)

Data:

  • All the variables should be available without hassle (I think)
  • Financial market performance
    • Stock market capitalization
    • Performance of financial stocks
  • I am not sure about splitting up the sample (as it’s possible to integrate it, in several kinds of analyses)
  • You are also thinking about counterfactuals, but there exist more effective ways to deal with that other than splitting the sample

Conclusion:

  • Your research proposal is definitely feasible. It is clear that you have studied the literature, but more attention should be paid to the methodology to fine-tune your research. I hope I have provided some starting points in these comments.