Understanding Quantitative Easing (QE) and Quantitative Tightening (QT) and Their Impact on Stock Markets
Quantitative Easing (QE) Quantitative Easing is an unconventional monetary policy where central banks purchase large quantities of government bonds and other financial assets to inject liquidity into the financial system. It is typically employed when traditional interest rate adjustments are insufficient to stimulate the economy. How It Works Quantitative Easing operates through the following mechanisms: Asset Purchases : Central banks purchase government bonds, corporate bonds, mortgage-backed securities (MBS), and other assets on a large scale. Liquidity Injection : This process injects new funds (base money) into the financial system. Interest Rate Reduction : Bond prices rise, causing long-term interest rates to fall. Balance Sheet Expansion : The central bank's balance sheet expands, leading to an increase in the money supply. Shift in Capital Flows : Investors move funds from low-yielding safe assets to riskier assets. Asset Price Appreciation : Stock, real estate...