Quantitative easing

Abstract

Since the aftermath of 2008 financial fiasco, the world and US in particularly has suffered its effectsin terms of liquidity crunch and a negative consumer sentiment. This was because people lost theirmoney put in stocks and primarily put in many asset-backed securities. In other words, money waswhipped off the system leaving it dry. With little money in pocket people’s tendency to save backwhatever they have, increased and at the same time, their penchant to expend decreased. The onlyoption left for the governments was to increase the liquidity back in the system.Most of the governments have used a blend of Fiscal plus Monetary policy tools to stimulate theeconomy. In this report, we discuss Quantitative Easing which is a special Monetary Policy tool. Itwas earlier used by Central bank of Japan as well as Bank of England to pump in money into theeconomy. The process involves various flavours and is discussed in detail in the subsequent section.