Quantitative easing

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Quantitative easing (or QE from English quantitative easing ) describes an unconventional form of expansion of the monetary base (expansionary monetary policy ) by a central bank . The central bank usually buys long-term private or public securities, such as government bonds , from the commercial banks . These purchases increase the monetary base .

Central banks take this measure when conventional monetary policy by lowering the key interest rate ( low interest rate policy ) does not work because short-term interest rates are already at zero (at the so-called zero interest limit) or below ( negative interest rate ). Quantitative easing aims to bring inflation closer to the central bank's inflation target ( below but close to 2% in the eurozone ) by lowering long-term interest rates on the bond market and providing additional liquidity in the banking system .

functionality

The banks receive additional central bank money for the sale of the long-term bonds in their possession . Unlike conventional monetary policy, the large volume of bond purchases creates excess reserves at the commercial banks . At the central bank, the balance sheet total increases with the value of the securities purchased . The starting point for the use of unconventional measures such as quantitative easing is often the existence of an economic situation characterized by extremely low interest rates, deflation and correspondingly low domestic demand and a lack of investment activity (these factors do not, however, have to be combined).

The further lowering of interest rates associated with the bond purchases, especially at the long end of the yield curve , should u. a. the demand for credit - and thus the growth of the money supply - can be stimulated (see also the section on the channels of quantitative easing ). Lower interest rates and cheaper interest rates are intended to stimulate corporate investment and consumption, which, depending on the size of the output gap, has both real effects in the form of higher economic growth and nominal effects in the form of higher prices.

In order to counteract an overheating of the economy and the associated inflationary pressure, the central bank can at a later point in time sell the bonds it had previously bought back to the commercial banks and absorb the same amount of central bank money. The associated rise in interest rates has a dampening effect on credit demand, economic growth and inflation. In English, the term tapering is used for this.

In contrast to other proposals such as helicopter money , quantitative easing has an indirect effect, as there is no direct increase in the amount of money , only the amount of central bank money (also known as the monetary base or liquidity). However, commercial banks are not limited in their lending and the associated money creation by available central bank money (liquidity), as they can always receive the central bank money required to meet the minimum reserve ex-post by depositing appropriate collateral received when lending.

Since central bank money (with the exception of cash) does not get into the money cycle of the real economy, because non-banks and private households have no access to accounts at the central bank and thus access to central bank money , an expansion of central bank money in the context of quantitative easing cannot directly inflationary “glut of money” can be spoken of. Such a formulation, as it is often found in the media, ignores the fundamental differences between central bank money and deposit money or assumes a stable causal relationship between the two variables - which does not exist in reality - based on an outdated money creation multiplier model . This false but widespread notion has been rejected by the Deutsche Bundesbank and the Bank of England at various points.

Demarcation

Differentiation of liquidity, quality and credit easing

Liquidity easing is the expansion of conventional central bank instruments with the aim of providing the banks with liquidity , for example to prevent panic reactions by market participants or bank runs .

The credit-easing refers to the case that the central bank next government bonds mainly private real estate mortgages or private money market securities buys, to free the credit market of stressful securities. This will lower the interest rate on the private bond market because the banks are being supplied with new money. Bernanke described the ECB's Outright Monetary Transactions program as credit easing, as opposed to QE, which was limited to buying government bonds.

As a quality-easing is called, the total not to increase the strategy of the central bank, but the corporate bonds in the portfolio of the central bank balance sheet by less valuable and risky to replace "toxic" securities, which the central bank function of a bad bank for the other Banks can get.

If monetary policy sterilization takes place in these cases , the measures have no effect on the monetary base and consequently have no effect through the interest rate channel. If, on the other hand, there is no sterilization, it is a variant of quantitative easing.

Differentiation between "monetary state financing" and "helicopter money"

In the case of monetary state financing , the central bank provides the government with the desired funds without receiving anything in return. So the central bank's balance sheet would not grow. The money supply would be increased by money creation without credit creation at the same time, which can lead to inflation if GDP remains the same.

Helicopter money is paid directly to citizens. Again, no consideration is recorded in the bank that generates and distributes the money, so that the bank balance sheet shrinks while the money supply grows. This can lead to currency devaluation if the extra money does not create additional goods and services.

Application examples

Japan (since 2001)

Quantitative easing was first applied by the Japanese Central Bank in March 2001. Quantitative easing has been more extensive since the financial crisis in 2007 .

Despite the purchase of Japanese government bonds as part of a quantitative easing, Japan is still on the verge of deflation and has had the highest government debt ratio of all OECD countries for decades . This is explained by a balance sheet recession in Japan . Helicopter money is therefore under discussion as a further measure.

United States (2009-2014)

In the course of the financial crisis from 2007 onwards , the US central bank lowered the key interest rate to zero to 0.25 percent in December 2008 , so that "quantitative easing" would have had to start in order to remain able to act in terms of monetary policy.

Quantitative Easing 1 (QE1, December 2008 to March 2010)

On 25 November 2008, announced US central bank that offers up to 600 billion US dollars Mortgage-backed securities (English mortgage-backed securities will buy just MBS). The program was officially launched on December 16. The Federal Open Market Committee (FOMC) announced on March 18, 2009 that the program would be expanded with an additional $ 750 billion to purchase mortgage-backed securities and $ 300 billion to purchase US Treasuries.

Quantitative Easing 2 (QE2, November 2010 to June 2011)

A new program for purchasing government bonds , also known as “Quantitative Easing II” (“QE2”), was initiated by the Open Market Committee on November 3, 2010 and lasted until the end of June 2011. Long-term US Treasuries of $ 75 billion per month were bought for $ 600 billion.

Operation Twist (September 2011)

On September 22, 2011, the US central bank announced a new edition of the "Operation Twist", which had already been used in 1961. As part of this program, the US Federal Reserve bought $ 400 billion in bonds with terms of 6 to 30 years and at the same time sold bonds with a term of less than 3 years to the same extent in order to extend the average term of its own portfolio. The US central bank wanted to achieve a lowering of long-term interest rates, which should tend to make loans cheaper.

Quantitative Easing 3 (QE3, September 2012 to October 2014)

On September 13, 2012, the US Federal Reserve announced a third round of quantitative easing (QE3), also known as QE III. In this new round of quantitative easing, $ 40 billion mortgage-backed securities (MBS) and $ 45 billion longer-term US Treasuries were bought each month until the labor market "improved significantly". On December 18, 2013, the Open Market Committee (FOMC) announced that QE3 would be gradually reduced to $ 10 billion per month. The US Federal Reserve ended this program in October 2014, ten months after it started reducing the monthly purchase volume.

Great Britain (2009-2014)

The UK central bank has been running quantitative easing since March 6, 2009 . As a first step, £ 75 billion was pumped into the market, also through the purchase of medium and long-term government bonds. On November 5, 2009 it was decided to expand the program to the amount held by the bank of £ 200 billion.

On October 6, 2011, the Bank of England announced an expansion of the quantitative easing program. The volume of assets purchased rose from £ 200 billion to £ 275 billion. The additional £ 75 billion should be mainly used to purchase UK government bonds over the next four months.

On February 9, 2012, the Bank of England decided to expand government bond purchases by £ 50 billion to a total of £ 325 billion.

Switzerland (2009-2015)

On March 12, 2009, the Swiss National Bank announced that it would buy up both foreign currencies and bonds. The extent to which the intervention was taking place was not disclosed.

Euro area (since 2015)

On May 8, 2009, the former ECB President Jean-Claude Trichet (until 2011) declared that the European Central Bank was not pursuing quantitative easing, but something that could be described as “ credit easing ”. The purchases of government and private bonds made by the ECB since May 10, 2010 also do not fall under quantitative easing because the purchases are sterilized in order to avoid effects on monetary growth.

On January 22, 2015, the ECB announced that it would buy bonds - government bonds and bonds from private borrowers - with a purchase price of over 1,100 billion euros on the secondary market between March 2015 and September 2016. The purchases should initially last until autumn 2016 or in any case until the ECB sees the inflation rate close to two percent again.

Expansion of the ECB bond purchase program

In March 2016, Draghi announced that the QE program would be extended by 6 months. In addition, the monthly purchases from April 2016 increased from € 60 billion to € 80 billion.

In December 2016, the ECB extended the bond purchase program by at least nine months until the end of 2017. From April 2017, monthly purchases will be reduced from € 80 billion to € 60 billion. In order to increase the pool of buyable government bonds, papers with a term of one year or more and with a yield of less than minus 0.4 percent will be acquired in the future.

The volume of government bonds bought up to the end of December 2018, including mortgage bonds, Pfandbriefe, regional and corporate bonds, is expected to total 2.6 trillion euros.

Since the interest rate level in the euro area is already very low and the weak price development is also determined by factors that are difficult to influence by the ECB in terms of monetary policy, the further effect of the bond purchase program is uncertain. There are still no clear empirical results for the effect of the ECB's bond purchases, because the effect of bond purchases on inflation and macroeconomic output is difficult to measure. Success depends crucially on the consumer and investment activity triggered.

If the purchase program is extended further in the future, the central banks of the euro zone should become one of the largest creditors in the member states and the total assets of the national central banks will increase accordingly. However, the bond purchases have a decoupling effect on the refinancing risk and thus less disciplining on the financial policy of the member states. The pressure for structural reforms is being dampened. If key interest rates rise again as a result of higher inflation and this leads to a loss of value in the bond portfolios, there is a risk of sliding into a regime of fiscal dominance. In this regime, national governments are not prepared to accept any losses in value at the central bank. However, this prevents effective control of the inflation rate. The ECB could no longer set key interest rates independently of politics. An exit can therefore only succeed if the monetary dominance of the central banks is preserved.

On August 15, 2017, the Second Senate of the Federal Constitutional Court announced that it would have these purchases examined by the European Court of Justice . There are three constitutional complaints before the Senate ; The complainants are Markus C. Kerber , Peter Gauweiler and Bernd Lucke . For the oral hearing on July 10, 2018, the ECB, the Bundesbank, the EU Commission and the German government submitted comments. On December 11, 2018, the ECJ ruled that the bond purchase program in Case C-493/17 was compatible with European law. The examination of the questions submitted to the court did not reveal "anything which would affect the validity of Decision (EU) 2015/774 of the European Central Bank of March 4, 2015 on a program for the purchase of public sector securities in the secondary markets in the EU) 2017/100 of the European Central Bank as amended on January 11, 2017. “The ECB has neither exceeded its mandate nor violated the ban on public finance.

On May 5, 2020, the second Senate of the Federal Constitutional Court decided that the ECB's bond purchase programs can only be compatible with German constitutional law if they comply with the principle of proportionality. The Federal Government and the Bundestag must work towards ensuring that a proportionality test is carried out and presented by the ECB.

Channels of quantitative easing

The aim of quantitative easing is to have a stimulating effect on economic growth and thus inflation. A distinction is made between different channels of action:

Portfolio reallocation channel

If a central bank buys securities on a large scale (for example government bonds), it reduces their supply on the capital market and increases the monetary base . As a result of the purchase, the price of the purchased securities increases and the interest on these securities decreases. As a result of the lower interest rates, investors are trying to shift their portfolios into alternative forms of investment with higher profitability, which also increases their price or decreases their interest rate. The resulting falling interest rates on a broad front stimulate private consumption and investment, which in turn drive inflation. When interest rates have fallen, investment projects are implemented sooner (e.g. a bank lends to an entrepreneur) than before, as the business appeared too risky. Consumption is stimulated because saving has become less attractive due to lower interest rates.

Signal and announcement channel

The signaling effect associated with the introduction of a bond purchase program plays an important role with regard to the inflation and interest rate expectations of market participants. Accordingly, market participants should lower their short-term interest rate expectations. Falling interest rates and the expectation of an expansive monetary policy devalue their own currency and in this way stimulate investment and consumer demand. The external value of the currency is falling, making exports abroad easier and making imports more expensive. At the same time, the central bank is sending out a signal that it is doing all it can to counter deflationary tendencies.

Fiscal channel

If the purchases of securities by the central bank mainly include government bonds and if these purchases are made for an unlimited period of time or if expiring securities are replaced by new ones, this has the effect of monetizing national debt. The public debt de facto falls in line with the amount of bond purchases. If the purchases of government bonds are not permanent, the new debt is reduced by the interest burden associated with the purchased bonds. The state is now distributing interest payments to the central bank instead of to private creditors of the bonds. The central bank distributes its profits, which then also contain interest income from bonds, to the state. The fiscal leeway of states is increased without increasing public debt. States can use the fiscal leeway they have gained for consumption and investment activities.

Evaluation

Studies on quantitative easing in the United States show that it is basically suitable for lowering real interest rates even when nominal interest rates are at zero . However, the effect decreases over time.

Quantitative easing has helped the US and UK to better achieve the price stability target (most central banks are aiming for just under 2% inflation ) by raising inflation expectations. In simulations, Hausken / Ncube found a positive contribution to industrial production and employment, but a significant increase in gross domestic product was only found for Great Britain. They conclude that quantitative easing can only bring about sustainable economic recovery in combination with structural reforms and other economic policies.

criticism

The policy of quantitative easing has been criticized from various angles.

  • Public finance: although the bonds are bought in the secondary market , the "factual certainty" of the states that they will find buyers for their bonds is brought into play. This would subsidize state borrowers and banks, which would take the pressure off of the countries concerned and thus (especially in the case of the ECB) represent a substantial moral hazard risk by diluting the differences between reform-minded and reform-resistant countries.
  • Concentration of risk on central bank balance sheets: the accumulation of bonds owned by central banks increases the risk that they will be affected by future defaults of the debtors and their credibility will suffer as a result and the defaulted debts will be socialized.
  • Other points of criticism: These include, for example, the rise in housing costs due to rising property prices, the lack of accuracy of the measure or the contradiction between the loose monetary policy that promotes consumption and the goals of environmental policy .

The key point of the supposedly so modern concept of quantitative easing was criticized as early as 1912 by the economist Ludwig von Mises in the work Theory of Money and Circulating Means : “The recurring occurrence of boom periods with subsequent periods of depression is the inevitable result of the constantly repeated attempts to reduce the market interest rate by expanding credit. There is no way to prevent the final collapse of a boom created by credit expansion. The only alternative is: Either the crisis arises earlier through the voluntary termination of a credit expansion - or it arises later as a final and total catastrophe for the monetary system in question. "

See also

Web links

Individual evidence

  1. ↑ What is quantitative easing? .
  2. ↑ Deutsche Bundesbank - Glossary - Quantitative Easing. In: www.bundesbank.de. Retrieved April 23, 2016 .
  3. ^ European Central Bank: Monetary Policy. Retrieved June 10, 2018 .
  4. ↑ European Central Bank: How does quantitative easing work? .
  5. ↑ Lisa Smith: Quantitative Easing: What's In A Name? | Investopedia. In: Investopedia. Retrieved April 23, 2016 (American English).
  6. ↑ Q&A: What is tapering? In: BBC News . December 19, 2013 ( bbc.com [accessed June 10, 2018]).
  7. ↑ Deutsche Bundesbank: Monetary Policy in Focus: Instruments and Techniques of Operational Monetary Policy. Retrieved June 10, 2018 .
  8. ↑ a b Deutsche Bundesbank: How money is made. April 25, 2017. Retrieved June 10, 2018 .
  9. ↑ Claudio Borio and Piti Disyatat: Unconventional monetary policies: an appraisal. In: BIS Working Papers 292.Bank of International Settlements, November 20, 2009, p. 19 , accessed June 10, 2018 (English).
  10. ↑ Handelsblatt: Despite the glut of money: ECB is not getting closer to inflation target . ( handelsblatt.com [accessed June 10, 2018]).
  11. ↑ Patrick Bernau: Euro Tsunami: The great glut of money . In: FAZ.NET . ISSN  0174-4909 ( faz.net [accessed June 10, 2018]).
  12. ^ Bank of England: Money creation in the modern economy. March 14, 2014, accessed June 10, 2018 .
  13. ↑ Credit easing versus quantitative easing. Federalreserve.gov (January 13, 2009).
  14. ^ Willem Buiter (December 9, 2008). "Quantitative easing and qualitative easing: a terminological and taxonomic proposal". Retrieved February 2, 2009.
  15. ↑ IMW: International Financial Stability Report , April 2009, Chapter 1: Stabilizing the Global Financial System and Mitigating Spillover Risks (PDF; 1.8 MB), Box 1.6
  16. ↑ International Monetary Fund , Vladimir Klyuev, Phil de Imus, and Krishna Srinivasan, Unconventional Choices for Unconventional Times: Credit and Quantitative Easing in Advanced Economies November 4, 2009, Box 1
  17. ↑ Kjell Hausken, Mthuli Ncube, Quantitative Easing and Its Impact in the US, Japan, the UK and Europe , Springer Science & Business Media, 2013, ISBN 978-1-4614-9646-5 , p. 1
  18. ↑ Expert Council for the Assessment of Macroeconomic Development November 2012: Annual Report 2012/13 “Stable Architecture for Europe - Domestic Action Needed”, p. 93f.
  19. ↑ Big economic stimulus package in Japan: Guesswork on using helicopter money , NZZ, July 27, 2016
  20. ^ FOMC statement .
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  22. ↑ Nils Rüdel, Handelsblatt September 14, 2012: "US central bank fires the stock markets"
  23. ↑ Expert Council for the Assessment of Macroeconomic Development November 2012: Annual Report 2012/13 "Stable Architecture for Europe - Domestic Action Needed", p. XX: QEIII "quantitative easing program 3"
  24. ↑ The Bank of England leaves the key interest rate at 0.5% and the scope of the asset purchase program at £ 200 billion ( Memento of the original dated September 5, 2011 in the Internet Archive ) Info: The @1@ 2Template: Webachiv / IABot / www.bankofengland.co.uk archive link has been inserted automatically and has not yet been checked . Please check the original and archive link according to the instructions and then remove this notice. , Bank of England press release on August 4, 2011
  25. ^ British central bank starts printing money again . October 6, 2011.
  26. ↑ Bank of England turns the money on again. In: nzz.ch. February 9, 2012, accessed October 14, 2018 .
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  28. ↑ The central banks open the floodgates. In: NZZonline. March 20, 2009, accessed on December 11, 2018 (Swiss Standard German).
  29. ↑ [1]  ( Page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. Video press conference, the last minutes.@1@ 2Template: Dead Link / www.thomson-webcast.net  
  30. ↑ ECB Plans to Buy European Bonds to Ease Greek Crisis  ( page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. , Bloomberg dated May 10, 2010.@1@ 2Template: Dead Link / preview.bloomberg.com  
  31. ↑ sueddeutsche.de January 22, 2015: The 1,140,000,000,000 euro plan
  32. ↑ ECB increases penalty interest , by Anja Schuchardt, Bayernkurier, March 10, 2016
  33. ↑ Frankfurter Allgemeine Zeitung of December 9, 2016, No. 288, page 15.
  34. ↑ ECB bond purchases reach 2.5 trillion euros , Handelsblatt, August 6, 2018
  35. ↑ Bernoth, Kerstin; King, Phillip; Friction, Carolin; Fratzscher Marcel (2015): Uncharted waters: bond purchases by the European Central Bank, DIW Weekly Report , ISSN  1860-8787 , Vol 82, Iss.. 13, p. 313
  36. ↑ Regime Fiscal Dominance Jens Weidmann (Bundesbank) on May 24, 2013
  37. ↑ Bernoth, Kerstin; King, Phillip; Friction, Carolin; Fratzscher, Marcel (2015): Unknown Terrain: Bond Purchases by the European Central Bank , DIW Weekly Report , ISSN  1860-8787 , Vol. 82, Iss. 13, p. 315
  38. ↑ Proceedings on the ECB's bond purchase program suspended and submitted to the Court of Justice of the European Union (press release No. 70/2017 of August 15, 2017)
  39. ↑ Zeit.de: The Federal Constitutional Court is critical of the glut of ECB money
  40. ↑ FAZ.net: European Court of Justice should review ECB bond purchases
  41. ^ FAZ.net / Philip Plickert : A legal gossip for the ECB
  42. ↑ FAZ.net / Reinhard Müller : On principle. Karlsruhe again involves the European Court of Justice to control the ECB. The EU is not an unlimited liability union, but a community of law. ( Comment )
  43. ↑ FAZ.net / Philip Plickert: Merkel's government is against Karlsruhe and on the side of the ECB
  44. ↑ Holger Zschäpitz: ECJ judgment: ECB gets a license to buy bonds . In: THE WORLD . December 11, 2018 ( welt.de [accessed December 11, 2018]).
  45. ↑ 2 Senate of the Federal Constitutional Court: Federal Constitutional Court - decisions - decisions of the ECB on the government bond purchase program contrary to competence. May 5, 2020, accessed May 5, 2020 .
  46. ↑ Bernoth, Kerstin; King, Phillip; Friction, Carolin; Fratzscher, Marcel (2015): Unknown Terrain: Bond Purchases by the European Central Bank, DIW Weekly Report , ISSN  1860-8787 , Vol. 82, Iss. 13, p. 314
  47. ↑ Stefan Gutbrunner, this is how quantitative easing works on January 21, 2015 ( Memento from January 22, 2015 in the Internet Archive )
  48. ↑ The monetary policy of the Eurosystem, Deutsche Bundesbank, p. 207 ( Memento of the original from April 23, 2016 in the Internet Archive ) Info: The archive link was automatically inserted and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.bundesbank.de
  49. ↑ Expert Council for the Assessment of Macroeconomic Development , November 2012: Annual Report 2012/13 "Stable Architecture for Europe - Domestic Action Needed" ( PDF ) pp. 84–85
  50. ↑ Kjell Hausken, Mthuli Ncube, Quantitative Easing and Its Impact in the US, Japan, the UK and Europe , Springer Science & Business Media, 2013, ISBN 978-1-4614-9646-5 , p. 4
  51. ↑ Silke Wettach: Hearing before the ECJ: Does the ECB operate prohibited public financing? Retrieved November 4, 2019 .
  52. ^ Thomas Jost, Franz Seitz: Ten arguments against buying government bonds by the ECB. January 28, 2015, accessed November 4, 2019 .
  53. ↑ ifo.de (Ed.): Ten arguments against quantitative easing and the purchase of government bonds by the Eurosystem . February 26, 2015 ( ifo.de [PDF]).
  54. ^ The dark sides of Quantitative Easing - Newsroom. In: Deutsche Bank Research. Accessed November 4, 2019 .
  55. ↑ Marco Di Maggio, Amir Kermani, Christopher Palmer: How Quantitative Easing Works: Evidence on the Refinancing Channel . Ed .: National Bureau of Economic Research. September 2016 ( nber.org [PDF]).
  56. ↑ Rudolf Tuppa: Panic, Interest and the Climate. October 23, 2019, accessed November 4, 2019 .
  57. ↑ Ludwig von Mises: Theory of money and the means of circulation . Duncker & Humblot, Munich and Leipzig 1912, ISBN 978-3-428-11882-3 .