Quantitative easing

Article summary

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 US 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 US and in 1999 for Japan.…

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