Quantitative easing

An unconventional monetary policy in which the central bank buying government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term rates at or near zero, and does not involve printing new banknotes.

Typically , the central bank targets the money supply by buying or selling government bonds. When the bank seeks to enhance economic growth, the purchase of government bonds, which lowered short-term interest rates and increase the money supply. This strategy loses its effectiveness when interest rates near zero, forcing the bank to try another strategy to stimulate the economy. Target QE commercial banks and private sector assets instead, and attempts to spur economic growth by encouraging banks to lend money. However, if the money supply increases too rapidly, quantitative easing may lead to higher levels of inflation . This is due to the fact that there is still a fixed amount of goods for sale at the time more money is now available in the economy. In addition, the bank may decide to keep the funds generated by quantitative easing in reserve rather than lend funds to individuals and businesses.

ARTIKEL TERKAIT: