Quantitative Easing

Quantitative Easing (QE) is a monetary policy tool used by central banks to stimulate the economy when traditional monetary policy becomes ineffective. This typically occurs when interest rates are already near zero and cannot be lowered further to encourage borrowing and spending. QE involves the central bank purchasing long-term securities, such as government bonds and mortgage-backed securities, from the open market. By doing so, the central bank increases the money supply, lowers interest rates on those securities, and encourages lending and investment. The goal is to boost economic activity by making borrowing cheaper and increasing asset prices, which can lead to higher consumer and business spending. # What is Quantitative Easing? Quantitative Easing (QE) is a non-traditional monetary policy tool used by central banks to inject liquidity into the economy. It is typically employed when conventional monetary policy, such as lowering short-term interest rates, has become ineffective, usually because those rates are already near zero. # How Does Quantitative Easing Work? Quantitative Easing works by having the central bank purchase long-term securities from the open market. These securities can include government bonds, corporate bonds, and mortgage-backed securities. By buying these assets, the central bank increases the money supply and lowers the yield on these securities, which in turn lowers long-term interest rates. This makes borrowing cheaper for businesses and consumers, encouraging spending and investment. Additionally, the increased demand for these securities raises their prices, which can boost the wealth of asset holders and further stimulate economic activity.