Quantitative easing (QE) is an unconventional monetary policy tool used by central banks to stimulate the economy when traditional methods, such as lowering interest rates, are no longer effective.

The key aspects of quantitative easing are:

1. Asset Purchases:
   • Under QE, the central bank purchases large quantities of assets, typically government bonds and other financial securities, from banks and other financial institutions.
   • This increases the money supply in the economy and provides banks with more liquidity, which can then be used to lend more to businesses and consumers.
2. Expanding the Central Bank’s Balance Sheet:
   • As the central bank purchases these assets, its balance sheet expands, reflecting the increased holdings of securities.
   • This is in contrast to traditional monetary policy, where the central bank’s balance sheet remains relatively stable.
3. Lowering Long-Term Interest Rates:
   • By purchasing long-term government bonds, the central bank can put downward pressure on long-term interest rates, which can help stimulate economic activity and investment.
   • Lower long-term rates make it cheaper for businesses and consumers to borrow money, encouraging spending and investment.
4. Providing Liquidity and Confidence:
   • Quantitative easing aims to increase the availability of credit and liquidity in the financial system, helping to restore confidence and stabilize the economy during times of economic uncertainty or recession.