Extended QE creates pessimistic sentiment – Bank of Canada paper

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Bank of Canada/Flickr

Extended periods of quantitative easing (QE) create more frequent, smaller waves of pessimistic, recessionary market sentiment, research published by the Bank of Canada finds.

Media narratives have “significant” effects on sentiment, Alistair Macaulay and Wenting Song say in the paper. They explore how reporting by the news media creates narratives that affect sentiment.

QE flattens the yield curve, making inversions more frequent – periods when short-term rates move above long-term rates. But

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