What is Quantitative Easing?
When Traditional Monetary Policy Isn’t Enough
The whole idea is to get as much money circulating through the economy as quickly as possible. It’s like giving the economy a shot of adrenaline.
Monetary policy is a macroeconomic policy implemented by a countries central bank to control the money supply and interest rates in the economy.
Expansive monetary policy is when the central bank attempts to stimulate the economy by lowering interest rates and increasing the money supply.
Contractionary monetary policy is when the central bank attempts to cool the economy by increasing interest rates and lowering the money supply.
Standard monetary policy would be to lower interest rates to stimulate investment & consumption which generates economic growth.
However, this type of monetary policy has its limits. What happens when interest rates are zero or near zero percent and the economy is still struggling? What is a central banker to do?
In this scenario, central banks may consider Quantitative Easing.
Quantitative Easing (QE)
