To assess that, we need to identify the distinct impact of monetary policy on the economy, both in aggregate and looking across the household distribution. Step Two: Calibrating the Impact of Monetary Policy  The policy episode we consider is the relaxation of UK monetary policy after the global financial crisis. These actions by the Bank’s Monetary Policy Committee (MPC) comprised: first, the reduction of short-term interest rates by 5 percentage points (from 5.5% to 0.5%) between February 2008 and March 2009; and second, the purchase of £ billion of government securities between March 2009 and mid-2012. In combination, these measures represented a very significant relaxation of UK monetary policy, perhaps the largest in the Bank of England’s history. We consider their combined effects, as interest rates and QE were part of a single monetary policy strategy by the MPC. Nonetheless, given their potentially different distributional consequences, we also consider the effects of QE and interest rates separately. To trace out the impact of these monetary interventions on the economy and on households, we use a macro-to-micro simulation approach. This involves two mappings. The first is from the monetary impulse to a small set of macro-economic aggregates (interest rates, employment, wages, equity and house prices and consumer prices). This is done using the Bank of England’s macro-economic model. Charts 7-9 show the effects of the combined monetary stimulus on aggregate GDP, unemployment and CPI inflation.
For example, the MPC’s monetary loosening added around £ per year to the average household’s net interest income, £ to their labour income and £ to their net wealth. The lower part of Figure 1 looks at the effects of non-financial channels on well-being, namely the reduction in the probability of unemployment, translated into income-equivalent units. 44  The increased probability of  being in a job adds in excess of £ each year for the average household. All in, this gives a boost to welfare for the average UK household of close to £ This is large relative to annual household income of £  As a memo item, and point of comparison, Figure 1 also shows an estimate of the annual cost of undertaking monetary policy, using data from the Bank of England’s accounts. 45  On a broad estimate, this annual cost  amounts to around £ per household per year. This “servicing charge” for monetary policy is clearly a very small fraction of the annual benefit to households from looser monetary policy over the period. The disaggregated analysis set out means that, in principle, a monetary policy scorecard like this could be fitted to any individual’s circumstances. As an illustration, Figures 2-4 show scorecards for three different hypothetical households: a renter under the age of 30; a 30-50 year old mortgagor; and a 50-plus home-owning household.