Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply. It involves flooding financial institutions with capital to promote increased lending and liquidity. The funds are created electronically rather than physically printed. Several central banks, including the Bank of Japan, US Federal Reserve, Bank of England, and European Central Bank engaged in QE programs following the 2008 financial crisis to boost their economies by lowering interest rates and purchasing assets like government bonds. While QE can help stimulate demand, there are also risks like potential impact on savings, pensions, inequality and emerging market economies.

1. QUANTITATIVE EASING
Atif Ghayas
Faculty of Management Studies and Research
Aligarh Muslim University
Aligarh, U.P

2. QUANTITATIVE EASING
• An unconventional monetary policy used by central banks to
stimulate the economy.
• A process of increasing the money supply by flooding FI’s with
capital to promote increased lending & liquidity.
• The fund is created electronically, not physically.

3. HISTORY OF QE
• Bank of Japan in early 2000’s
• 1st used by BOJ to fight Deflation (19 March 2001)
• Interest Rate close to ZERO, to promote lending, excess
reserve & minimise risk
• ↑ Bank Current A/c balance from ¥5 trillion to ¥35 trillion
over a four-year period.

4. US Federal Reserve from 2008-13
• Similar policies have been used by US, UK, & Euro-zone
nations.
• USA Interest rate is federal funds rate.
• UK - official bank rate
• US Federal Reserve expanded its balance sheet dramatically
by adding new assets and new liabilities without "sterilizing"
these by corresponding subtractions.

5. UNITED STATES QE1, QE2, AND QE3
 QE1
• The US Federal Reserve held between $700 billion and $800
billion of Treasury notes
• In March 2009, US Fed held $1.75 trillion of bank debt,
mortgage-backed securities, and Treasury notes and reached
a peak of $2.1 trillion in June 2010.
• The Fed bought $30 billion in two- to ten-year Treasury notes
every month.

6.  QE2
• In November 2010, the Fed announced a second round of
quantitative easing.
• Buys $600 billion of Treasury securities by the end of the
second quarter of 2011.
• "QE2" became a ubiquitous nickname in 2010.

7.  QE3
• announced on 13 September 2012.
• The Federal Reserve decided to launch a new $40 billion per
month
• The Federal Open Market Committee (FOMC) announced
that it would likely maintain the federal funds rate near “zero
"at least through 2015.

8. • On 12 December 2012, the FOMC announced an increase in
the amount of open-ended purchases from $40 billion to $85
billion per month.
• Inflation follows a 2% target rate and unemployment
decreases to 6.5%

10.  European Central Bank in 2009
• Focus on buying covered bonds, a form of corporate debt
• Initial purchases was worth about €60 billion in May 2009.
• A total of 12% of its reserves were in foreign equities.
 Bank of England in 2009-10
• Bought gilts from FI’s
• Cheaper capital to business through securitisation
• Purchase £165 billion in assets (Sept 2009) and around £175
billion in assets by end of October 2010.

11. PROCESS OF QE

12. EFFECTS OF QE
 Inflation
 Standard of Living
 Depreciation of Currency
 Investment in Assets

13. IMPACT OF QE
Impact on Emerging and Developing Economies
• Stimulate demand, maintain trade flows and avoid large-scale
unemployment.
• Revive from economic stagnation, depressed markets and
large-scale unemployment.
• QE prop up demands, encouraging banks to expand and
boosting stock valuations.

14. • Before the crisis, the U.S. held 700 to 800 billion dollars of
Treasury notes. The current level is 2.054 trillion dollars.
• The European Central Bank (ECB) has pumped 489 billion
euro’s of liquidity into the euro-zone since the crisis.
• United Kingdom QE has reached the level of 375 billion pounds
during crisis.
• Bank of Japan pumps 1.4 trillion dollars in two years into its
economy aiming 2% inflation rate
IMPACT OF QE

15. RISK
 Savings and Pensions
• Low government bond yield rates induced by QE will have
an adverse impact on the underfunding condition of
pension funds
• Real value of the savings declining
 Housing market Over-supply & QE3
• Less recoveries aided in housing market
• Recession caused huge overhang of houses

16. CONT.
 Capital Fight
• The new money could be used by the banks to invest in :
i. Emerging Markets
ii. Commodity-based economies
iii. Commodities themselves
iv. Non-local opportunities.

17. CONT.
 Increase Income and Wealth Inequality
• QE program had boosted the value of stocks and bonds by
26%, or about $970 billion.
• About 40% of those gains went to the richest 5% of British
households.
• Top 5% own 60% of the nation's individually held financial
assets

18. CONT.
 Criticism by BRIC Countries
• criticized the QE carried out by the central banks of
developed nations.
• Argued that such actions amount to
protectionism and competitive devaluation.
• net exporters whose currencies are partially pegged to
dollar, they protest that QE causes inflation to rise in their
countries and penalizes their industries.

19. CONCLUSION
• Quantitative easing can be used to help ensure inflation does
not fall below target.
• Bernanke, prefers to use the term ‘credit easing’.
• The aim is to boost spending to keep inflation on track .

20. THANK YOU!