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Quantitative Easing 2 (QE2)

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


Quantitative easing in the United Kingdom: evidence from financial markets on QE1 and QE2
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 …

The effects of quantitative easing on interest rates: channels and implications for policyThe 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 easingOn 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 operationsQuantitative 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 EasingA 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 volatilityThe 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 marketsEffects 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 behaviorThe 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 AsiaImpact 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 …



Q&A About Quantitative Easing 2 (QE2)


How does quantitative easing work?

Quantitative easing increases money supply by increasing demand for loans and investments by lowering interest rates through bond purchases by central banks or other methods such as lending money directly to commercial banks at low interest rates. It also lowers long term interest rates which encourages spending and investment by businesses and consumers alike leading them into debt traps with higher prices for goods due to inflation caused by increased money supply but no increase in wages causing lower purchasing power for people thus making it harder for them to pay off their debts while making more profits for companies who are able answer this challenge better than smaller companies because they have more capital available thus allowing them to expand their production capacity while smaller companies go out of business due lack of capital availability thus increasing unemployment rate among small business owners who then become unemployed workers thus further decreasing demand for goods produced by large corporations leading them into debt traps with higher prices for goods due to inflation caused by increased money supply but no increase in wages causing lower purchasing power for

When was QE2 initiated?

The second round of quantitative easing (QE2) was initiated in the fourth quarter of 21.

Why did the Federal Reserve initiate QE2?

The Federal Reserve announced plans to buy 6 billion in long-term Treasuries, in addition to the reinvestment of an additional 25 billion to 3 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.

What is quantitative easing?

Quantitative easing is a monetary policy used to stimulate an economy through a central bank's purchase of government bonds or other financial assets.