ABSTRACT
Quantitative easing has become one of the buzzwords of the GFC; it is an unconventional monetary policy that ‘increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity’. 1 Yet, this conception is reminiscent of the monetarist conception of monetary policy that is criticized in this chapter. For the Bank of England (Wolf, 2012), ‘asset purchases work by restoring confidence, signaling future policy, forcing rebalancing of portfolios, improving liquidity and increasing the money supply when the standard mechanism – lending by banks – has frozen’. Quantitative easing is thus a confidence building and liquidity enhancing policy. Contrariwise, critics often argue that quantitative easing puts the economy on a path to hyperinflation. In this chapter, we try to answer the question whether quantitative easing amounts to sound policy making, or an admission of defeat by monetary authorities. We briefly review the Japanese quantitative experiment between 2001 and 2006, before addressing the programmes implemented by the Fed in 2009 and 2010. Finally, we adopt a critical approach of quantitative easing, whose monetary underpinnings and effects on international macroeconomic balances are singled out.
