Quantitative Easing (QE)

Extracted Attributes

• Coined By

  Richard Werner

• Policy Type

  Unconventional Monetary Policy

• Target Assets

  Government bonds, mortgage-backed securities, and corporate shares

• Opposite Action

  Quantitative Tightening (QT)

• Primary Mechanism

  Large-scale asset purchases to increase bank reserves

• Criticized Effects

  Asset bubbles, wealth inequality, and potential for excessive inflation

• Economic Condition for Use

  Liquidity trap (interest rates near zero)

Timeline

• Economist Richard Werner coins the term 'quantitative easing'. (Source: Wikipedia)

  1995-01-01

• The Bank of Japan begins implementing QE to combat domestic deflation. (Source: Wikipedia)

  1999-01-01

• The U.S. Federal Reserve announces its first round of large-scale asset purchases (QE1) following the Great Financial Crisis. (Source: Wikipedia)

  2008-11-25

• Major central banks globally launch massive QE programs in response to the economic shock of the COVID-19 pandemic. (Source: Wikipedia)

  2020-03-15

Quantitative easing

Quantitative easing (QE) is a monetary policy action where a central bank purchases predetermined amounts of government bonds, company shares, or other financial assets (liquidity) in order to artificially stimulate economic activity. Quantitative easing is a novel form of monetary policy that began in Japan and came into wide application in the U.S. following the 2008 financial crisis. It attempts to mitigate economic recessions when inflation is very low or negative. Quantitative tightening does the opposite, where for monetary policy reasons, a central bank sells off some portion of its holdings of government bonds or other financial assets. Similar to conventional open-market operations used to implement monetary policy, a central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. However, in contrast to conventional monetary policy, quantitative easing usually involves the purchase of riskier or longer-term assets (rather than short-term government bonds) of predetermined amounts at a large scale, over a pre-determined period of time. Central banks usually resort to quantitative easing when interest rates approach zero, such as in 2008 and 2020 for the U.S. and in 1999 for Japan. Very low interest rates induce a liquidity trap, a situation where people prefer to hold cash or very liquid assets, given the low returns on other financial assets. This makes it difficult for interest rates to go below zero; monetary authorities may then use quantitative easing to stimulate the economy rather than trying to lower the interest rate. Quantitative easing can help bring the economy out of recession and help ensure that inflation does not fall below the central bank's inflation target. The term quantitative easing was coined by economist Richard Werner in 1995. Since then, it has faced a range of criticisms. Economists argue that it can inflate asset bubbles, potentially worsening a recession rather than alleviating it. Others highlight QE's mixed side effects and risks, it may overshoot its goal by countering deflation too aggressively and fueling long-term inflation, or fail to stimulate growth if banks remain reluctant to lend and borrowers hesitant to borrow. QE has also been criticized for raising financial asset prices, and thereby contributing to economic inequality. Major central banks around the world, including the U.S., U.K., E.U., and Japan, have implemented quantitative easing following the 2008 global financial crisis and again in response to the COVID-19 pandemic.

Web Search Results

• How Quantitative Easing Spurs Economic Recovery

  Quantitative easing (QE) is a powerful tool used by central banks, such as the U.S. Federal Reserve, to stimulate economic activity when traditional monetary policy options become ineffective. By purchasing securities in the open market, QE aims to lower interest rates and boost the money supply, providing banks with additional liquidity. This increased liquidity encourages lending and investment, thereby supporting economic growth. [...] Quantitative easing (QE) is a monetary policy used by central banks, such as the Federal Reserve, to stimulate economic growth by purchasing securities and increasing the money supply. While QE can lower interest rates and boost stock markets, its broader economic impact remains difficult to quantify, with effects showing mixed results across different countries. [...] Quantitative easing is a form of monetary policy in which a central bank, like the U.S. Federal Reserve, purchases securities through open market operations to increase the supply of money and encourage bank lending and investment. QE policies have been implemented globally. However, their impact on a country’s economy is often debated. Article Sources

• Quantitative Easing | Research Starters

  Quantitative Easing (QE) is a monetary policy tool used by central banks to stimulate economic growth when traditional methods, like lowering interest rates, are no longer effective, particularly when rates are close to zero. This strategy has been implemented by various central banks, including the Federal Reserve in the U.S., the European Central Bank, and the Bank of Japan, especially during periods of economic downturn such as the 2008 financial crisis and the COVID-19 pandemic. By creating [...] Quantitative easing (QE) is a tactic used by central banks, such as the Federal Reserve Bank in the United States, to increase the money supply and stimulate growth when the more usual tactic of lowering the interest rate charged to banks is not possible. QE has been applied by several national economies in the twenty-first century, including Japan, the United States, and the United Kingdom, with mixed results. It is notoriously difficult to evaluate the effectiveness of strategies such as QE, [...] Fawley, Brett W., and Christopher J. Neely. “Four Stories of Quantitative Easing.” Federal Bank of St. Louis Review, Jan./Feb. 2013, pp. 51–88. Irwin, Neil. The Alchemists: Three Central Bankers and a World on Fire. Penguin, 2013. Jackson, Anna-Louise. "What Is Quantitative Easing? How Does QE Work?" Forbes, 13 Feb. 2024, www.forbes.com/advisor/investing/quantitative-easing-qe. Accessed 1 Nov. 2024.

• Quantitative Easing: How Well Does This Tool Work? | St. Louis Fed

  Quantitative easing (QE)—large-scale purchases of assets by central banks—led to a large increase in the Federal Reserve’s balance sheet during the global financial crisis (2007-2008) and in the long recovery from the 2008-2009 recession. Over the same period, QE played a very important role at other central banks in the world. Indeed, in some of those countries, particularly Japan, QE remains a key instrument of monetary policy—an unconventional policy tool that central bankers can potentially [...] QE is an unconventional monetary policy action, in a class with forward guidance and negative nominal interest rates. To understand QE, we first need to review how conventional monetary policy works. [...] QE consists of large-scale asset purchases by central banks, usually of long-maturity government debt but also of private assets, such as corporate debt or asset-backed securities. Typically, QE occurs in unconventional circumstances, when short-term nominal interest rates are very low, zero or even negative.

• [PDF] Everything You Ever Wanted To Know About Quantitative Easing

  What is "quantitative easing"? Under "quantitative easing," or "QE," the central bank deliberately expands the size of its balance sheet by acquiring assets (usually government debt securities, but in principle any asset) paid for by creating reserves. Because the starting point will be a situation in which the level of reserves is around the minimum required level, a central bank doing QE will be creating a large amount of excess reserves. [...] QE is one of the things central banks do (or can do) when they have exhausted their conventional interest rate ammunition. That's when they have lowered their policy rate to or close to zero (the "zero interest rate bound" or "zero bound") but still need to ease monetary policy further to achieve their goals (usually some mix of the generally complementary goals of low but stable inflation and an economy operating at or close to full capacity). QE can be thought of an extension of interest rate [...] WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 7, 2014 12 1352014 | 301765622 Economic Research: A QE Q&A: Everything You Ever Wanted To Know About Quantitative Easing Is QE a powerful monetary easing tool?

• Quantitative easing

  Quantitative easing (QE) is one of the tools we use to meet our 2% inflation target. QE lowers long-term borrowing costs to support spending in the economy and hit the inflation target. ## Related links + Inflation and the 2% target + Interest rates and Bank Rate ## In this section Inflation and the 2% target Interest rates and Bank Rate ## What is quantitative easing? Quantitative easing is a tool central banks can use to meet an inflation target. [...] Additionally, we can buy bonds to bring down longer-term interest rates on savings and loans. This is sometimes called quantitative easing (QE). It is the Monetary Policy Committee (MPC) that decides on Bank Rate and QE. When we need to reduce the rate of inflation, we raise interest rates. Higher interest rates mean borrowing costs more and saving gets a higher return. That leads to less spending in the economy, which brings down the rate of inflation.