The essence of quantitative easing (QE) is reducing the cost of private borrowing through large-scale purchases of privately issued debt instead of public debt (Bernanke, 2009). Considering the economy has drastically recovered, it is time to consider how exiting from these private asset purchases will affect the economy.
While households decreased credit card debt between 2007 and 2010, the process varied by education level between the extensive margin (how many households borrowed) and the intensive margin (how much households borrowed).
Quantitative easing has led to the largest expansion of the Fed’s balance sheet since WW II. While this, naturally, leads to concern about inflation, the Fed has the tools to unwind the balance sheet once the economy builds steam.
What monetary policy tools did the Federal Reserve use prior to the Great Recession? What did it do differently during and after the Great Recession? Episode 2 of the Feducation Video Series includes a simple demonstration of Open Market Operations and a discussion of non-traditional monetary policy tools.
Watch Episode 2: Traditional and Non-Traditional Monetary Policy Tools
This article describes the circumstances of and motivations for the quantitative easing programs of the Federal Reserve, Bank of England, European Central Bank, and Bank of Japan during the recent financial crisis and recovery.