What is quantitative easing, and does it really work in boosting economic prospects? CBI experts answer your key questions on this central bank policy tool
Key takeaways
- Quantitative easing (QE) is a term for when a central bank “prints” money to buy financial assets
- QE is believed to have boosted confidence among households, businesses and investors
- QE boosts asset prices, but there is very little evidence to suggest that this leads to wider inequality
In most advanced economies, a key mandate of central banks is to maintain price stability. Usually, this manifests in a target for inflation (the pace at which the aggregate price level rises) at a rate which is judged to be low, stable and/or in line with the economy’s growth potential. In the UK, the Bank of England targets a 2% rate of inflation (on the Consumer Price Index measure).
Adjusting interest rates is the main method by which central banks manage demand to meet an inflation target. This became an issue during the 2008/9 financial crisis, when the sheer scale of the economic downturn led central banks across the world to cut rates close to zero. With traditional tools of stimulating activity thus exhausted, central banks turned to “quantitative easing” (QE) – purchasing financial assets through creating new bank reserves (popularly known as “printing money”). Prior to this, the use of quantitative easing was la
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