Quantitative easing
Quantitative easing (QE) is something a central bank can do to help the economy. It is done by buying bonds or other assets. With this, the interest rate will decrease and the rate of inflation will go up. It is usually used when inflation is very low or negative. It is used when normal expansionary monetary policy doesn't work.
Quantitative easing can help bring an economy out of recession. The International Monetary Fund, the U.S. Federal Reserve, and other economists say that quantitative easing after the 2007-2008 financial crisis helped stop some problems from getting worse.
QE is used by the United States, the United Kingdom and Japan. It has helped to cause a bull market on stock exchanges.
History
The US Federal Reserve used policies similar to quantitative easing during the Great Depression of the 1930s.[1][2]
Japan before 2007
A policy called "quantitative easing" (量的金融緩和, ryōteki kin'yū kanwa) was first used by the Bank of Japan (BOJ) to stop domestic deflation in the early 2000s.[3][4][5][6] The BOJ had kept short-term interest rates at close to zero since 1999. The Bank of Japan had for many years, and as late as February 2001, said that "quantitative easing ... is not effective". They did not like to use it for monetary policy.[7]
The Bank of Japan says that they started quantitative easing on 19 March 2001.[8][9]
Quantitative Easing Media
Federal Reserve holdings of treasury notes (blue) and mortgage-backed securities (red)
**10 Year Treasury Bond*2 Year Treasury Bond*3 month Treasury Bond*Effective Federal Funds Rate*CPI inflation year/year* Recessions
Increase in US Federal Reserve assets in response to COVID-19 pandemic
Immediate and delayed effects of quantitative easing
References
- ↑ Hoover Institution, Economics Working Paper 14110, "Exiting from Low Interest Rates to Normality: An Historical Perspective", November 2014 Retrieved 10 March 2015.
- ↑ Edward J. Pinto, American Enterprise Institute, "The 30-Year Fixed Mortgage Should Disappear," 27 April 2016, Retrieved 27 April 2016. Archived 28 February 2017 at the Wayback Machine
- ↑ "Dr. Econ: I noticed that banks have dramatically increased their excess reserve holdings. Is this buildup of reserves related to monetary policy?". Federal Reserve Bank of San Francisco. March 2010. Retrieved 4 April 2011.
- ↑ Japan sets inflation goal in fight against deflation. BBC News. 16 February 2010. http://news.bbc.co.uk/2/hi/8517760.stm. Retrieved 4 April 2011.
- ↑ Mark Spiegel. "FRBSF: Economic Letter—Quantitative Easing by the Bank of Japan (11/02/2001)". Federal Reserve Bank of San Francisco. Retrieved 19 January 2009.
- ↑ Voutsinas, Konstantinos, and Richard A. Werner, "New Evidence on the Effectiveness of 'Quantitative Easing' in Japan", Centre for Banking, Finance and Sustainable Development, School of Management, University of Southampton.
- ↑ Hiroshi Fujiki et al., "Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists Archived 2019-01-21 at the Wayback Machine", Monetary and Economic Studies, February 2001, p. 98. Retrieved 9 August 2010.
- ↑ Shirakawa, Masaaki, "One Year Under 'Quantitative Easing' Archived 2019-01-21 at the Wayback Machine", Institute for Monetary and Economic Studies, Bank of Japan, 2002.
- ↑ Bank of Japan, "New Procedures for Money Market Operations and Monetary Easing Archived 2009-07-19 at the Wayback Machine", 19 March 2001. Retrieved 9 August 2010.
Other websites
- Credit Easing Policy Tools Interactive chart of the assets on Federal Reserve's balance sheet.
- Deflation: Making Sure "It" Doesn't Happen Here, 2002 speech by Ben Bernanke on deflation and the utility of quantitative easing
- Bank of England – Quantitative Easing
- Bank of England – QE Explained Pamphlet
- Modern Money Mechanics Archived 2020-08-06 at the Wayback Machine Federal Reserve Document Explaining How Money Is Created
- Quantitative easing explained (Financial Times Europe)
- A Fed Governor Discusses Quantitative Easing Among Other Topics