Home | Topics | QE

QE Quantitative Easing; Will QE ‘work’? Morgan Stanley Global Economic Forum

Printer-friendly versionSend to friendPDF version

Defining quantitative easing. Quantitative Easing (QE) is in operation when the central bank allows or indeed pursues a rapid expansion of the monetary base.

The mechanics. The monetary base is the sum of currency in circulation and reserve balances of commercial banks (the balances that commercial banks maintain with the central bank). Suppose the central bank lends the commercial bank electronic cash (i.e., simply adds the amount to the credit balance of the commercial bank held at the Fed) in return for a financial security as collateral. The collateral security sits on the asset side of the central bank’s balance sheet, and the central bank credits the reserve balance of the commercial bank, which sits on the liability side of the central bank’s balance sheet, with (electronic) cash. Under normal circumstances, if the increase in reserve balances (and hence the monetary base) is unwelcome, the central bank would simply sell some securities in the open market to reduce the cash balances of commercial banks – an operation known as ‘sterilization’. Effectively, the central bank replaces the security previously held by banks with either cash or with a safe, liquid government security if the first transaction is sterilized. Under quantitative easing, however, the central bank would conduct the first transaction without sterilizing it, thus allowing the reserve balance of the commercial bank, and therefore the monetary base, to expand.




See Morgan Stanley's Brilliant and Comprehensive Analysis Here;-



Short URL
Asymptotix on Twitter

Are the key legislative pillars such as Basel II & III, UCITS IV and Solvency II forcing you to re-examine how you identify, measure and manage risk and capital?

Asymptotix work closely with our partners to help clients develop a more proactive, systematic and integrated approach to governance and risk management to deliver proper value.

Asymptotix can offer the support you need to deliver on time. Read more...

Is the goal of your website to sell services or products, educate, or collect data?

A positive customer experience is vital to conversion, no matter what your conversion goals may be. Our designers and developers will create a positive experience to maximize your conversions and deliver the optimal return on your investment. We strive to find the perfect balance between the web site’s design and functionality.

Asymptotix implements interactive solutions for European companies. From corporate websites to social communities, our clients will tell you an investment in building a scalable online experience will deliver long-term tangible benefits.

Based in Luxembourg we can help you all over Europe. Our multi-lingual team can work with projects and speak your language! Read more...