Quantitative easing definition
Quantitative easing (QE) is a dovish monetary strategy imposed by a central bank to increase the money supply in an economy by purchasing long-term securities on the open market. The central bank's objective is to stoke growth and investment when the interest rate is at or near zero.
QE is an alternative monetary policy used when the usual open market operations are not functioning as they should be. There is sometimes a danger that it will cause inflation and fall short of its impact on growth.
Does quantitative easing cause inflation?
Quantitative easing (QE) can cause inflation as the supply of money in an economy rises and drops the currency's purchasing power, leading to a rise in prices. The objective of QE is to stoke economic growth, but this doesn’t always happen.
Stagflation describes a situation of inflation with no economic growth and sometimes high unemployment. Hyperinflation is a rapid upward rise in prices of over 50% each month and can be a direct consequence of QE.
Another consequence related to QE is currency devaluation, which can help domestic manufacturers as their products become more price-competitive on the global market, but currency devaluation can also drive up the price of imports and add to the cost of goods in the economy.