Certain Macroeconomic Effects of the Federal Reserve’s Quantitative Easing Program

Abstract

Quantitative easing (QE) may be considered as one of the most controversial monetary policy tools in recent times. The launching of the programme has been triggered by the events of the financial and economic crisis unfolding in the United States in 2007, which caused a general loss of confidence of economic agents, as well as other serious problems such as the drying up of the interbank market1 or the liquidity crisis2. There is no clear agreement on the success of the strategy of money printing. With numerous arguments for and against, it is still debated whether the unprecedented amount of money pumped into the economy – about USD 3,750 billion in the United States – has effectively contributed to restoring the health of the economy. It is indisputable, however, that the US can still be regarded as one of the most stable economies, and the normalisation of the economy is also confirmed by the interest rate hike in December 2015. It should be also noted that the large amount of money created by the central bank has affected many areas of the economy in various channels through the increase of money supply, and due to globalisation many countries of the world could enjoy the possibilities offered by cheap money via spillover effects. The turning point of events can be connected to the withdrawal of the QE (also known as tapering), which was also a clear signal of the coming end of the asset purchase programme. Generally, it caused uncertainty and volatility in the markets. The period before the interest rate hike provoked similar reactions, and moving away from the zero interest rate policy can be regarded as the most important milestone of monetary tightening. This article is based on the review of the literature on the topic and on a comparison of the different views in order to reveal the role of QE in the period after the crisis.*