Quantitative Easing: Evaluating QE’s Impact

After the 2008 financial panic, central banks in the US, UK, Europe and Japan experimented with the aggressive use of their balance sheets to stabilize their financial markets and encourage a return to higher rates of economic activity. These activities have become known as quantitative easing or QE. This research focuses mostly on balance sheet activities employed by the US Federal Reserve (Fed), and distinguishes between the initial round of quantitative easing (QE1) in late 2008 with later rounds of balance sheet activity to purchase more US Treasury securities or mortgage-backed securities (QE2 & QE3) and to adopt the maturity extension program (i.e., Operation Twist). With respect to certain ideas presented here, in a few cases we also consider European Central Bank (ECB) activities that were relevant to the discussion. [See Chapter 15 for an in-depth comparison of the effectiveness of the Fed’s QE programs versus the approach utilized by the ECB.]…