Abstract
After rapidly cutting short-term interest rates to their effective lower bounds during the financial crisis of 2008–09, central banks in the USA and UK turned to quantitative easing (QE) in order to sustain aggregate demand and avoid a Japanese style deflationary spiral. The European Central Bank eschewed large-scale asset purchases, but instituted a number of major lending programs that significantly increased the size of its balance sheet. Existing studies suggest that the initial rounds of QE provided a significant boost to both growth and inflation in the USA and UK, whilst the evidence on the impact of the ECB’s actions has also been favourable. One area of disappointment, however, was the inability of unconventional policies to generate a material revival in bank lending. Meanwhile, fears that QE would fuel a sharp acceleration in inflation have so far proven misplaced, although central banks will need to be increasingly alert to the risks once more sustainable economic recoveries begin to emerge. Policymakers must also pay significant attention to the financial stability risks associated with the long period of extremely accommodative monetary policy.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Bibliography
Antolin Diaz, J. 2013. Understanding the ECB’s monetary policy. Fulcrum Research Papers, Fulcrum Asset Management.
Ashworth, J., and C.A.E. Goodhart. 2011. QE2 Likely to Set Sail, but it’s No Panacea. Morgan Stanley Research. Available on request from authors.
Ball, L., and N.G. Mankiw. 2002. The NAIRU in theory and practice. Journal of Economic Perspectives 16(4): 115–136.
Bank for International Settlements. 2012. BIS Annual Report 2011/12. Available at: http://www.bis.org/publ/arpdf/ar2012e.htm
Bank of England. 2009. MPC minutes.
Bank of England. 2011. Quarterly Bulletin 3Q. The United Kingdom’s quantitative easing policy: design, operation and impact. Available at: http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/a11.aspx
Bank of England. 2013a. Agents’ Summary of Business Conditions. Available at: http://www.bankofengland.co.uk/publications/Pages/agentssummary/agsum13jun.aspx
Bank of England. 2013b. Financial Stability Report. Available at: http://www.bankofengland.co.uk/publications/Pages/fsr/2013/fsr33.aspx
Bernanke, B.S. 2000. Japan’s slump: A case of self-induced paralysis? Paper presented at American Economic Association meetings; also in Japan’s Financial Crisis and Its Parallels to U.S. Experience (ed. A. Posen and R. Mikitani). Institute for International Economics.
Bernanke, B. 2009. Reflections on a year of crisis. Speech delivered at Financial Stability and Macroeconomic Policy, a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming.
Bernanke, B.S. 2012. Monetary policy since the onset of the crisis. Remarks at the Federal Reserve Board of Kansas City Economic Symposium, Jackson Hole, Wyoming.
Bernanke, B.S. 2013. Monitoring the financial system. At the 49th Annual Conference on Bank Structure and Competition, sponsored by the Central Bank of Chicago, Chicago.
Brunner, K., and A.H. Meltzer. 1973. Mr. Hicks and the monetarists. Economica 40: 43–49.
Bomfim, A.N., and L.H. Meyer. 2010. Quantifying the effects of Fed asset purchases on treasury yields. Monetary Policy Insights: Fixed Income Focus.
Caglar, E., S. Chadha, J. Meaning, J. Warren, and A. Waters. 2011. Non-conventional Monetary Policies: QE and the DSGE Literature. Available at: http://www.kent.ac.uk/economics/documents/research/papers/2011/1110.pdf
Chadha, J.S., and S. Holly. 2012. Interest Rates, Prices and Liquidity: Lessons from the Financial Crisis. Cambridge: Cambridge University Press.
Chung, H., J.-P. Laforte, D. Reifschneider, and J.C. Williams. 2011. Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events? Federal Reserve Bank of San Francisco, WP No. 2011-01. Available at: http://www.frbsf.org/publications/economics/papers/2011/wp11-01bk.pdf
Clouse, J., D. Henderson, A. Orphanides, D.H. Small, and P.A. Tinsley. 2000. Monetary policy when the nominal short-term interest rate is zero. BE Press Journal of Macroeconomics: Topics in Macroeconomics 3(1), article 12.
Cour-Thimann, P., and B. Winkler. 2012. The ECB’s non-standard monetary policy measures: The role of institutional factors and financial structure. Oxford Review of Economic Policy 28(4): 765–803.
D’Amico, S., and T.B. King. 2010. Flow and Stock Effects of Large-scale Treasury Purchases. Federal Reserve Board, WP No. 2010-52. Available at: http://www.federalreserve.gov/pubs/feds/2010/201052/201052pap.pdf
Dudley, B. 2010. The outlook, policy choices and our mandate. Remarks at the Society of American Business Editors and Writers Fall Conference, City University of New York, Graduate School of Journalism, New York City. Available at: http://www.newyorkfed.org/newsevents/speeches/2010/dud101001.html
Friedman, M., and A.J. Schwartz. 1963. A Monetary History of the United States, 1867–1960. Princeton: Princeton University Press.
Friedman, M., and A.J. Schwartz. 1982. Monetary Trends in the United States and the United Kingdom: Their Relation to Income, Prices and Interest Rates, 1867–1975. Chicago: University of Chicago Press.
Gagnon, J., M. Raskin, J. Remache, and B. Sack. 2011. The financial market effects of the Federal Reserve’s large scale asset purchases. International Journal of Central Banking 7(1): 3–43.
Giannone, G., M. Lenza, H. Pill, and L. Reichlin. 2011. Non-standard monetary policy measures and monetary developments. In Interest Rates, Prices and Liquidity: Lessons from the Financial Crisis, ed. J.S. Chadha and S. Holly. Cambridge: Cambridge University Press.
Giannone, G., M. Lenza, H. Pill, and L. Reichlin. 2012. The ECB and the interbank market. Discussion Paper No. 8844, CEPR, February.
Goodhart, C.A.E. 2010. Money, credit and bank behaviour: Need for a new approach. National Institute Economic Review 214: F73.
Goodhart, C.A.E., and J.P. Ashworth. 2012. QE: A successful start may be running into diminishing returns. Oxford Review of Economic Policy 28(4): 640–670.
Joyce, M., M. Tong, and R. Woods. 2011. The United Kingdom’s quantitative easing policy: Design, operation and impact. Bank of England Quarterly Bulletin 51(3): 200–212. Available at: http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/a11.aspx.
Kapetanios, G., H. Mumtaz, I. Stevens, and K. Theodoridis. 2012. Assessing the economy-wide effects of quantitative easing. Bank of England WP No. 443. Available at: http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp443.pdf
Keynes, J.M. 1936. The General Theory of Employment, Interest and Money (1964 reprint). New York: Harcourt, Brace.
Krishnamurthy, A., and A. Vissing-Jorgensen. 2011. The effects of quantitative easing on interest rates: Channels and implications for policy. NBER WP No. 17555. Available at: http://www.nber.org/papers/w17555.ack
Lenza, M., H. Pill, and L. Reichlin. 2010. Monetary policy in exceptional times. Economic Policy 62: 295–339.
Miles, D. 2012. Winding and unwinding extraordinary monetary policy. Speech at RBS Scottish Economic Society Annual Lecture, Edinburgh. Available at: http://www.bankofengland.co.uk/publications/Pages/speeches/2012/598.aspx
Modigliani, F., and R. Sutch. 1966. Innovations in interest rate policy. American Economic Review 56: 178–197.
National Association of Pension Funds. 2012. Exceptional Times, Exceptional Measures? Economic Developments and the Impact on Pension Schemes and Members. Available at: http://www.napf.co.uk/PolicyandResearch/DocumentLibrary/0221_Exceptional_times_exceptional_measures_economic_developments_March_2012.aspx
Reinhart, C., and K. Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press.
Shirakawa, M. 2012. Central banking: Before, during, and after the crisis. Remarks at a Conference Sponsored by the Federal Reserve Board and the International Journal of Central Banking. Available at: http://www.bis.org/review/r120329b.pdf
Stein, J. 2013. Overheating in credit markets: Origins, measurement, and policy responses. Remarks at Restoring Household Financial Stability after the Great Recession: Why Household Balance Sheets Matter, a research symposium sponsored by the Federal Reserve Bank of St Louis. Available at: http://www.federalreserve.gov/newsevents/speech/stein20130207a.htm
Swanson, E.T. 2011. Let’s twist again: A high-frequency event-study analysis of Operation Twist and its implications for QE2. Brookings Papers on Economic Activity Spring: 151–188.
Taylor, J. 1993. Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy 39: 194–214.
Turner, A. 2013. Debt, money and Mephistopheles: How do we get out of this mess? Speech at Cass Business School, London.
Woodford, M. 2012. Methods of Policy Accommodation at the Interest Rate Lower Bound. Paper presented to the Jackson Hole Symposium, August/September.
Wadhwani, S. 2013. The great stagnation: What can policymakers do? Speech at the Annual Peston Lecture, London.
Yellen, J. 2011. The Federal Reserve’s asset purchase program. Speech at the Brimmer Policy Forum, Allied Social Science Associations Annual Meeting, Denver, Colorado, 8 January.
Acknowledgments
Unless otherwise indicated, the views in this paper are those of the author and not of Morgan Stanley. The author is grateful to Charles Goodhart for his comments.
Author information
Authors and Affiliations
Editor information
Additional information
This article is not an offer to buy or sell any security/instruments or to participate in a trading strategy. For important current disclosures that pertain to Morgan Stanley, please refer to the disclosures regarding the issuer(s) that are the subject of this article on Morgan Stanley’s disclosure websitehttps://www.morganstanley.com/researchdisclosures.
Copyright information
© 2018 Macmillan Publishers Ltd.
About this entry
Cite this entry
Ashworth, J. (2018). Quantitative Easing by the Major Western Central Banks During the Global Financial Crisis. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_3046
Download citation
DOI: https://doi.org/10.1057/978-1-349-95189-5_3046
Published:
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-95188-8
Online ISBN: 978-1-349-95189-5
eBook Packages: Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences