Quantitative Easing

Quantitative easing (QE) is a monetary policy tool used by central banks to stimulate the economy in times of economic downturn or recession when traditional monetary policy measures have been exhausted. The central bank purchases long-term securities from the market, such as government bonds or mortgage-backed securities, to increase the money supply and lower interest rates.

How Quantitative Easing Works

When a central bank implements quantitative easing, it injects a significant amount of money into the financial system, making it easier for banks to lend money to consumers and businesses. Lower interest rates encourage borrowing and spending, which in turn boosts economic activity and helps to stimulate growth and inflation.

Goals of Quantitative Easing

The primary goals of quantitative easing are to prevent deflation, stimulate economic growth, and encourage lending and investment. By increasing the supply of money in the economy, central banks aim to lower borrowing costs, encourage spending, and support asset prices.

Effects of Quantitative Easing

While quantitative easing can help to support the economy during challenging economic times, it can also have long-term consequences such as inflation and asset bubbles. Central banks must carefully monitor the impact of quantitative easing and adjust their policies accordingly to maintain price stability and financial stability.