Quantitative easing: Difference between revisions
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''Monetary policy.'' | |||
(QE). | (QE). | ||
Quantitative easing is a form of monetary policy used to stimulate an economy where interest rates are either at, or close to, zero. | |||
It involves a central bank buying financial assets, and its effect is to increase the money supply. | It involves a central bank buying financial assets, and its effect is to increase the money supply. | ||
It has the overall effect of printing electronic money. | |||
The financial assets bought are usually central government debt, and also sometimes high-quality corporate bonds. | |||
''Theoretically'' this extra money will chase all the other assets, stimulating supply and driving up prices, increase confidence, encourage lending and activity in the real (non financial) economy. | |||
This boost is intended to lead to a self-perpetuating cycle of increasing activity. | |||
QE also serves to keep general interest rates lower, and hence borrowing rates lower which should encourage borrowing and investment. | |||
''In practice'' it does not always increase confidence and demand. | |||
More plentiful money, and cheaper borrowings, are not necessarily enough on their own to encourage businesses and individuals to increase spending, or encourage banks to lend more to higher-risk businesses. | |||
== See also == | == See also == | ||
* [[Asset purchase | * [[Asset Purchase Facility]] | ||
* [[Asset purchase programme]] | |||
* [[Balance sheet reduction policy]] | |||
* [[Cash in the new post-crisis world]] | |||
* [[Central bank]] | * [[Central bank]] | ||
* [[Corporate bond]] | |||
* [[Debase]] | |||
* [[Easing]] | |||
* [[Fiscal policy]] | |||
* [[Gilts]] | |||
* [[Helicopter money]] | |||
* [[Monetary policy]] | * [[Monetary policy]] | ||
* [[Money supply]] | * [[Money supply]] | ||
* [[POMO]] | |||
* [[Quantitative tightening]] | |||
* [[QE2]] | * [[QE2]] | ||
* [[ | * [[Real economy]] | ||
* [[ | * [[Tightening]] | ||
[[Category:Long_term_funding]] | [[Category:Long_term_funding]] | ||
Latest revision as of 22:54, 28 February 2024
Monetary policy.
(QE).
Quantitative easing is a form of monetary policy used to stimulate an economy where interest rates are either at, or close to, zero.
It involves a central bank buying financial assets, and its effect is to increase the money supply.
It has the overall effect of printing electronic money.
The financial assets bought are usually central government debt, and also sometimes high-quality corporate bonds.
Theoretically this extra money will chase all the other assets, stimulating supply and driving up prices, increase confidence, encourage lending and activity in the real (non financial) economy.
This boost is intended to lead to a self-perpetuating cycle of increasing activity.
QE also serves to keep general interest rates lower, and hence borrowing rates lower which should encourage borrowing and investment.
In practice it does not always increase confidence and demand.
More plentiful money, and cheaper borrowings, are not necessarily enough on their own to encourage businesses and individuals to increase spending, or encourage banks to lend more to higher-risk businesses.
