Quantitative easing and the ‘hot potato’ effect: Evidence from euro area banks

a column by Ellen Ryan and Karl Whelan for VOX: CEPR’s Policy Portal

The EU’s asset purchase programme saw its central banks’ reserve balances increase to unprecedent levels.

This column analyses the response of banks in the euro area to this expansion in system-wide reserves, in particular whether they absorbed the excess liquidity or tried to push it off their balance sheets. The findings suggest that banks dealt with the increased reserves with the purchase of debt securities or paying down funding sources rather than lending to the real economy.

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The powers and pitfalls of quantitative easing

a column by Wei Cui and Vincent Sterk for VOX: CEPR’s Policy Portal

The effects of quantitative easing are poorly understood, in part because standard models of monetary policy predict that it doesn't work.

This column uses a model in which households can be unequal and hold assets with different degrees of liquidity to show that quantitative easing can provide a powerful stimulus to the macroeconomy, and that it avoided a large decline in output and inflation during 2009.

Nevertheless, side-effects on inequality mean that social welfare tends to be lower under quantitative easing than under conventional policy.

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I still don’t understand what is being talked about and I feel that I should.

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