Quantitative easing (QE) is a monetary policy used by central banks to stimulate an economy. It involves the central bank creating new money and using it to purchase government bonds and other financial assets in the market. The aim of QE is to increase the supply of money in the economy and lower interest rates, which can encourage borrowing, spending, and investment. This, in turn, can help to stimulate economic growth and reduce unemployment.
QE is typically used when traditional monetary policy tools, such as reducing the central bank’s benchmark interest rate, are not effective in boosting economic growth. The central bank’s purchases of government bonds and other financial assets increase the demand for these assets, which drives up their prices and lowers their yields. This, in turn, reduces borrowing costs for businesses and consumers, making it easier and cheaper for them to access credit.
Quantitative easing has been used by many central banks around the world during the 2008 financial crisis and its aftermath, as well as during other periods of economic uncertainty. It remains a controversial policy, with some economists arguing that it can lead to inflation and other unintended consequences, while others believe that it is an effective tool for stimulating economic growth and reducing unemployment.