Jonathan
Introduction#
In general, your introduction is nicely written and clearly illustrates the relevance of the topic. My suggestion would be to give more examples making clear that central banks and governments have faced criticism re: QE, precisely because it disproportionally impacts financial markets and the general economy. You can illustrate that using not only:
GDP data indicated that throughout 2020 the GDP per capita decreased by 1.23% while the unemployment rate increased from all-time lows of 3.5% in January 2020 to 6.70% at the end of 2020. This is a clear indication of the divergence that QE can have on the real economy and the financial markets.
but also examples from outside the US. Japan (as far as I can recall) has a long history with QE, with very ambiguous results - maybe it is useful to have a look at that case for additional motivation.
- Maybe you can provide a graphic illustration of economic growth + financial sector growth in several countries to illustrate the relevance of your point
Divergence: the definition of divergence is something like $\text{Fin. Sector Growth Rate}_t - \text{GDP Growth Rate}_t$. Maybe you can pay attention to the historical data, and investigate, or show, that these two series were very highly correlated before QE became a popular tool. If that isn’t the case, you have something to explain!
This study takes a different perspective from prior literature which uses macroeconomic factors and measures it using a linear regression, instead a AR(1)‐QGARCH‐SGED model is used to measure QE policy effect on the stock markets as well as the business cycle over the specified structural break.
Avoid using this jargon, unless you can tell me what it means! In the methods section, you should definitely pay attention to the econometrics - models with a lagged component are always tricky, and it might matter a lot which method you use.
Lit review#
Suggestion for the structure: in your graphical representation, you show a number of studies focusing on a particular channel: $QE \Rightarrow Ec Growth$ or $QE \Rightarrow Fin Sec Growth$. I think it makes sense to structure your literature review in the same way, with a third subchapter making it likely why that impact is differential on economic growth and fin. sector growth.
Methodology#
- Talking point: data sources and statistical model