What is QE (Quantitative Easing)?
Quantitative easing is a type of monetary policy that can be used by a central bank during a time when the bank has been unable to stimulate economic activity through more normal means. It is, in essence, akin to printing money to stimulate the economy.
Quantitative easing is somewhat similar to open market operations in that the central bank is buying government securities from banks. In open market operations, the central bank does this in order to keep interest rates at a desired point. By contrast, in QE, the central bank buys securities even though the interest rate is close to zero. The central bank does this because the low interest rate has not brought about enough economic activity. Therefore, the central bank buys securities simply to pump more money into the economy.
This is why we can say that QE is similar to printing money. The government is simply buying securities from the private sector using money that did not previously exist. It is creating new money to help stimulate the economy. This is one reason why QE is a controversial practice; it brings about a risk of inflation because of the artificial increase in the money supply.
QE, then, is a process by which the central bank pumps money into the economy by buying securities even when the interest rate is already near to zero.
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