Quantitative easing

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Monetary policy.


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.

See also