When is Quantitative Easing effective?

Arbeitspapier

We present a simple macroeconomic model with open market operations that allows examining the effects of quantitative and credit easing. The central bank controls the policy rate, i.e. the price of money in open market operations, as well as the amount and the type of assets that are accepted as collateral for money. When the policy rate is sufficiently low, this set-up gives rise to an (il-)liquidity premium on non-eligible assets. Then, a quantitative easing policy, which increases the size of the central bank's balance sheet, can increase real activity and prices, while a credit easing policy, which changes the composition of the balance sheet, can lower interest rate spreads, stimulate real activity, and reduce prices. The effectiveness of quantitative and credit easing is however limited to the extent that eligible assets are scarce. Nevertheless, they can help escaping from the zero lower bound.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 11-001/2/DSF 6

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles
• Subject: Monetary policy ; collateralized lending ; quantitative easing ; credit easing ; liquidity premium ; zero lower bound ; Kreditpolitik ; Preisstabilität ; Inflationserwartung ; Zinspolitik ; Preisrigidität ; Cash-in-Advance-Restriktion ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hoermann, Markus ; Schabert, Andreas
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/87052
• Last update: 10.03.2025, 11:44 AM CET