Fifty Shades of QE Revisited National Institute of Economic and Social Research
19 September 2023
Our point is not that these are irrelevant to the estimation of the effect but rather that, unless they are addressed they distort conclusions about the significance of the relationship between central bank affiliation and the effects of QE on the variables in question. [...] Rather than minimising the sum of squares of the residuals, this estimator minimizes the sum of absolute deviations of the residuals. [...] As the OLS estimator minimises the sum of the squared residuals, any outlying observation will get a large weight, and the greater the outlier, the greater the weight put on this observation. [...] The results showing the statistical significance of a central bank affiliation on the estimate of the output effect of QE are shown in table 1 and for the inflation effect in table 2. [...] This highlights the risk that the OLS findings may be an artefact of the distribution of the estimates of the different researchers rather than a robust statistical finding.