Quantitative easing…

QE is a policy that has also been carried out in the UK following the financial crisis and credit crunch.QE attempts to increase liquidity and decrease interest rates when conventional methods of achieving these objectives are difficult to achieve. This is the case when short term interest rates are at close to zero. QE is often primarily carried out by Central banks through the mechanism of the central bank purchasing financial assets of banks (often in the form of government bonds or high quality private sector bonds) and therefore increasing the private banks reserves. This increaeses banks reserve base and means that the monetary base has been expanded which will increase the money supply in the economy through the money multiplier effect.For this reason critics of QE often call it printing money and argue that it devalues the value of money and is inflationary.A secondary effect of QE is that it decreases the yields of the asset classes that the Central bank buys by decreasing the supply of assets of these classes.In this way the yield curve can be manipulated by undertaking QE.