ABSTRACT
The United States’ Federal Reserve System responded to the Global Financial Crisis of 2008 by implementing an unconventional monetary policy called Quantitative Easing, or QE. The European Central Bank (ECB) followed suit and implemented its own version of QE in early 2015. Through QE, central banks purchase government bonds and other securities from private financial institutions such as insurance companies and pension funds in exchange for central bank reserves. These securities transactions wind up increasing deposits in commercial banks, which in turn should encourage banks to increase their lending to private businesses. Increased lending and investment in turn stimulates output and employment. The need for QE arose because interest rates have hovered around 0 percent, rendering traditional monetary policy instruments ineffective.
