What is 'Quantitative Easing 2 – QE2'

The second round of the Federal Reserve's monetary policy used to stimulate the U.S. economy following the recession that began in 2007/08. QE2 was initiated in the fourth quarter of 2010 in order to jump-start the sluggish economic recovery. The Federal Reserve announced plans to buy $600 billion in long-term Treasuries, in addition to the reinvestment of an additional $250 billion to $300 billion in Treasuries from earlier proceeds from mortgage-backed securities. This, in theory, would push yields on Treasuries and bonds down, creating a surge in investment and consumption expenditures.

Explaining 'Quantitative Easing 2 – QE2'

Quantitative easing was intended to stimulate an economy through a central bank's purchase of government bonds or other financial assets. Often, central banks use quantitative easing when interest rates are already zero bound, or at near 0% levels. This type of monetary policy increases the money supply and typically raises the risk of inflation. Quantitative easing is not specific to the U.S., however, and is used in a variety of forms by other major central banks.

Further Reading

The effects of quantitative easing on interest rates: channels and implications for policy
www.nber.org [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …

On the international spillovers of US quantitative easing
academic.oup.com [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …

Quantitative easing and proposals for reform of monetary policy operations
papers.ssrn.com [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …

A global monetary tsunami? On the spillovers of US Quantitative Easing
papers.ssrn.com [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …

The effect of Fed's quantitative easing on stock volatility
papers.ssrn.com [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …

Effects of quantitative easing on asia: capital flows and financial markets
papers.ssrn.com [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …

The effects of quantitative easing on bank lending behavior
academic.oup.com [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …

Impact of US quantitative easing policy on emerging Asia
papers.ssrn.com [PDF]
… financed by the creation of central bank money, is widely referred to as 'quantitative easing' (QE) (see Bernanke and Reinhart, 2004), in contrast to 'credit easing', which is … nominal spending and thereby domestically generated inflation, so as to meet the MPC's 2 per cent …