Quantitative easing
양적완화
A monetary policy in which, once the policy rate has been cut close to zero and cannot go lower, a central bank uses newly created money to buy long-term assets such as government bonds or mortgage-backed securities in large, predetermined amounts. It aims to lower long-term interest rates and inject money so as to fend off recession and deflation. The Bank of Japan first used it in 2001, and after the 2008 financial crisis it spread to the United States, Britain, Europe and elsewhere. It is criticised for inflating asset prices so that the gains go mostly to the wealthy.
In depth
A central bank usually steers the economy by raising and lowering short-term interest rates; lower rates make borrowing easier and so raise investment and consumption. But once rates are already near zero they cannot be cut further, and with low returns on other assets people prefer to hold cash, a situation called a liquidity trap. Quantitative easing is the means a central bank uses then to increase the "quantity" of money instead of cutting its price.
The method resembles open-market operations. A central bank buys bonds from banks and other financial institutions and pays with newly created money, which raises bond prices, lowers their yields (long-term interest rates) and leaves the banks with more reserves. But whereas ordinary open-market operations buy and sell short-term government bonds, quantitative easing buys longer and riskier assets such as long-term government bonds and mortgage-backed securities in large, predetermined amounts over a set period.
The policy began in Japan. The Bank of Japan had kept short-term rates near zero since 1999, but as deflation persisted it adopted on 19 March 2001 the quantitative easing it had rejected as ineffective as late as February 2001, and used it until March 2006. After the 2008 financial crisis the US Federal Reserve cut its policy rate to 0–0.25 percent and in late November 2008 began buying $600 billion of mortgage-backed securities (later called "QE1"); by March 2009 it held $1.75 trillion of bank debt, mortgage-backed securities and Treasury notes. The Fed went on with a second round buying $600 billion of Treasury securities from November 2010 (QE2) and, from September 2012, open-ended purchases of $40 billion of mortgage-backed securities a month (QE3), and in June 2013 Bernanke signalled a "tapering" of purchases. The Bank of England began quantitative easing in March 2009 and had bought £175 billion of assets by the end of October 2009. Japan launched still larger purchases under Abenomics in 2013, and the European Central Bank later followed the same path.
Judgements of its effects and side effects differ. Supporters hold that it stabilised financial markets and prevented deflation, softening the recession. Critics say it inflates asset bubbles. Greenspan judged in July 2012 that it had had "very little impact on the economy", and bank deposits at the Fed rose by nearly $4 trillion during QE1–3, closely tracking the Fed's bond purchases. A 2012 Bank of England report showed that the gains of its quantitative easing had gone mainly to the wealthy, 40 percent of them to the richest 5 percent of British households.