Quantitative Easing and the Safe Asset Illusion

Quantitative Easing and Financial Stability∗

The massive expansion of central-bank balance sheets in response to recent crises raises important questions about the effects of such “quantitative easing” policies, both their effects on financial conditions and on aggregate demand (the intended effects of the policies), and their possible collateral effects on financial stability. The present paper compares three alternative dimensions of ce...

The Macroeconomic Effects of Quantitative Easing

When and How To Exit Quantitative Easing?

S ince the onset of the financial crisis in late 2007, the Federal Reserve has injected an astronomical amount of money into the economy through its large-scale asset purchase (LSAP) programs. According to former Fed Chairman Ben Bernanke (2009, p. 5), the essence of LSAP is “credit easing” (CE)—that is, reducing the cost of private borrowing by direct purchases of privately issued debt instead...

Did Quantitative Easing Increase Income Inequality ?

The impact of the post-meltdown Federal Reserve policy of ultra-low interest rates and Quantitative Easing (QE) on income and wealth inequality has become an important policy and political issue. Critics have argued that by raising asset prices, near-zero interest rates and QE have significantly contributed to increases in inequality, while practitioners of central banking, counter that the dis...

Scarce collateral, the term premium, and quantitative easing

A model of money, credit, and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium —an upward-sloping nominal yield curve. Purchases of long-maturity government debt by the central bank are always a good idea, but for unconventional reasons. A floor system is always welfare improving, as it gives the cent...