Quantitative easing, macroeconomic stability and economic policy effectiveness

Abstract

Purpose

This study mathematically aims to evaluate the implications of a central bank’s adoption of a policy of quantitative easing (QE)/relative QE.

Design/methodology/approach

It is shown, within an investment-savings (IS)-liquidity preference-money supply (LM) framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.

Findings

Furthermore, it is shown here that the presence of QE increases the effectiveness of traditional discretionary monetary and fiscal policies.

Originality/value

The study shows, within an IS-LM framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.

Citation

Cebula, R. and Rossi, F. (2022), "Quantitative easing, macroeconomic stability and economic policy effectiveness", Journal of Financial Economic Policy, Vol. 14 No. 4, pp. 468-475. https://doi.org/10.1108/JFEP-06-2021-0149