Wikipedia;
'Process[edit]
See also: Monetary policy
Standard central bank monetary policies are usually enacted by buying or selling government bonds on the open market to reach a desired target for the interbank interest rate. However, if a recession or depression continues even when a central bank has lowered interest rates to nearly zero, the central bank can no longer lower interest rates, a situation known as the liquidity trap. The central bank may then implement quantitative easing by buying financial assets without reference to interest rates. This policy is sometimes described as a last resort to stimulate the economy.[1][2]
A central bank enacts quantitative easing by purchasing—regardless of interest rates—a predetermined quantity of bonds or other financial assets on financial markets from private financial institutions.[3][4] This action increases the excess reserves that banks hold. The goal of this policy is to ease financial conditions and facilitate an expansion of private bank lending.
The Dutch Central Bank itself sees QE as being a money creation operation:[5]
The Eurosystem directly injects money into the economy by purchasing the bonds with newly created electronic cash. This is called quantitative easing.
Quantitative easing is supposed to stimulate the economy through five main channels:
Credit channel: by providing liquidity in the banking sector, QE is supposed to make it easier and cheaper for banks to extend loans to companies and households, thus stimulating credit growth. Additionally, if the central bank also purchases financial instruments that are riskier than government bonds (such as corporate bonds or ABS), it can also lower the interest yield of those assets (as those assets are more scarce in the market, and thus their prices go up correspondingly).
Portfolio rebalancing: by doing QE, the central bank withdraws an important part of the safe assets from the market onto its own balance sheet, which may result in private investors turning to other market segments. By lack of government bonds, investors are forced to "rebalance their portfolios." Additionally, if the central bank also purchases financial instruments that are riskier than government bonds, it can also lower the interest yield of those assets (as those assets are more scarce in the market, and thus their prices go up correspondingly).[6]
Exchange rate: because it increases the money supply, QE tends to depreciate a country's exchange rates relative to other currencies, through the mechanism of the interest rate. Lower interest rates lead to a capital outflow from a country, thereby reducing foreign demand for a country's money, leading to a weaker currency. This feature of QE directly benefits exporters living in the country performing QE
Fiscal effect: by lowering yields on sovereign bonds, QE is making it cheaper for governments to borrow on financial markets, which may empower the government to provide fiscal stimulus to the economy. Quantitative easing is best viewed as a debt refinancing operation of the "consolidated government" (the government including the central bank), whereby the consolidated government, via the central bank, retires government debt securities and refinances them into central bank money (reserves).
Signal effect: some economists argue that QE's main impact is due to its communication effect on the market. For instance, some observed that most of the effect of QE in the Eurozone on bond yields happened between the date of the announcement of QE and the actual start of the purchases by the ECB.'
So... if all countries use QE... no depreciation of currency???
Canada did not use QE... what did this get us???
A higher exchange rate vs US and EU... killing primary producers???
'Process[edit]
See also: Monetary policy
Standard central bank monetary policies are usually enacted by buying or selling government bonds on the open market to reach a desired target for the interbank interest rate. However, if a recession or depression continues even when a central bank has lowered interest rates to nearly zero, the central bank can no longer lower interest rates, a situation known as the liquidity trap. The central bank may then implement quantitative easing by buying financial assets without reference to interest rates. This policy is sometimes described as a last resort to stimulate the economy.[1][2]
A central bank enacts quantitative easing by purchasing—regardless of interest rates—a predetermined quantity of bonds or other financial assets on financial markets from private financial institutions.[3][4] This action increases the excess reserves that banks hold. The goal of this policy is to ease financial conditions and facilitate an expansion of private bank lending.
The Dutch Central Bank itself sees QE as being a money creation operation:[5]
The Eurosystem directly injects money into the economy by purchasing the bonds with newly created electronic cash. This is called quantitative easing.
Quantitative easing is supposed to stimulate the economy through five main channels:
Credit channel: by providing liquidity in the banking sector, QE is supposed to make it easier and cheaper for banks to extend loans to companies and households, thus stimulating credit growth. Additionally, if the central bank also purchases financial instruments that are riskier than government bonds (such as corporate bonds or ABS), it can also lower the interest yield of those assets (as those assets are more scarce in the market, and thus their prices go up correspondingly).
Portfolio rebalancing: by doing QE, the central bank withdraws an important part of the safe assets from the market onto its own balance sheet, which may result in private investors turning to other market segments. By lack of government bonds, investors are forced to "rebalance their portfolios." Additionally, if the central bank also purchases financial instruments that are riskier than government bonds, it can also lower the interest yield of those assets (as those assets are more scarce in the market, and thus their prices go up correspondingly).[6]
Exchange rate: because it increases the money supply, QE tends to depreciate a country's exchange rates relative to other currencies, through the mechanism of the interest rate. Lower interest rates lead to a capital outflow from a country, thereby reducing foreign demand for a country's money, leading to a weaker currency. This feature of QE directly benefits exporters living in the country performing QE
Fiscal effect: by lowering yields on sovereign bonds, QE is making it cheaper for governments to borrow on financial markets, which may empower the government to provide fiscal stimulus to the economy. Quantitative easing is best viewed as a debt refinancing operation of the "consolidated government" (the government including the central bank), whereby the consolidated government, via the central bank, retires government debt securities and refinances them into central bank money (reserves).
Signal effect: some economists argue that QE's main impact is due to its communication effect on the market. For instance, some observed that most of the effect of QE in the Eurozone on bond yields happened between the date of the announcement of QE and the actual start of the purchases by the ECB.'
So... if all countries use QE... no depreciation of currency???
Canada did not use QE... what did this get us???
A higher exchange rate vs US and EU... killing primary producers???
Originally posted by TOM4CWB
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