Quantitative easing which countries

People buying things and businesses investing helps the economy stay healthy, protecting jobs. But interest rates are currently just above zero - there's no scope for another big cut. That's why the Bank has turned to quantitative easing QE. It's another way to encourage spending and investment. The Bank of England is in charge of the UK's money supply - how much money is in circulation in the economy.

That means it can create new money electronically. That's why QE is sometimes described as "printing money", but in fact no new physical bank notes are created. The Bank spends most of this money buying government bonds. Government bonds are a type of investment where you lend money to the government.

In return, it promises to pay back a certain sum of money in the future, as well as interest in the meantime. Buying billions of pounds' worth of bonds pushes the price up: when demand for anything increases, the price usually goes up too. Many interest rates on loans offered by banks to businesses and individuals are affected by the price of government bonds.

If those government bond prices go up, the interest rates on those loans should go down - making it easier for people to borrow and spend money. In addition, many investors buy government bonds in times of crisis, as a safe place to put their money, because the UK government has never failed to repay a bond.

If the Bank of England drives the price of those bonds up, that safety becomes more expensive. So those investors may be encouraged to buy shares or lend money to businesses again instead - both of which will help to support the economy.

The first QE programme in the UK was launched in when the financial crisis was threatening the economy, unemployment was rising and the stock markets were in freefall. The Bank subsequently launched new rounds of QE after the eurozone debt crisis, the Brexit referendum and the coronavirus pandemic. While the QE era in the US appears to be over, the Fed is expected to be cautious about raising borrowing costs given the slowdown in US inflation.

In December, inflation was just 0. At the same time it cut interest rates to a record low of 0. Six years on, the debate rages over whether QE was the best, or the fairest, way to steer Britain out of the credit crunch. The Bank has faced the charge that QE has exacerbated inequality, partly by helping banks in handing them big amounts of money while doing little to support small firms and households.

The Bank itself said that wealthy families had been the biggest beneficiaries of QE thanks to the resulting rise in value of shares and bonds. The strong responses of the three indicating variables in high-income countries reflect a richer history of QE policy in developed economies.

This is not surprising since several high-income countries such as the United States, Japan, the Eurozone, and the United Kingdom have engaged in QE for at least a decade since the Great Recession and exhibit long patterns of central bank asset purchases before Wealthier countries also generally have lower levels of inflation from where increasing inflation expectations is more effectively accomplished by QE.

A larger takeaway here is that while shallower and shorter in response, upper-middle-income countries exhibit a similar pattern in response to QE, especially with respect to inflation and unemployment. Thus QE may have some applications in upper-middle-income countries but the empirical evidence is not clear and one may expect limited effectiveness in stimulating the real economy. For low and lower-middle countries, the record is even less convincing: QE can generate inflation but the real effects are close to zero.

The economies that succeeded with QE shared a common privilege: low and stable inflation from which expectations can be increased. This is not the case for Ukraine and the outlook for using QE in the Ukrainian context is not rosy. The evidence shows that QE-like policy in lower-middle and low-income countries the World Bank classifies Ukraine as a lower-middle-income country has been unable to significantly increase inflation relative to the baseline rate with little to no reaction of unemployment and the real GDP growth rate.

One explanation is that raising inflation expectation via QE policies is not productive because economic players in these countries have a stagflationary view of inflation in other words, more inflation means less output.

This is certainly consistent with the survey evidence for Ukraine. Another possibility is that the financial system is too underdeveloped to take advantage of QE policies Ukraine ranks low in financial development. In other words, the transmission from asset prices to real activity is weak.

In summary, by enacting QE in Ukraine, the National Bank of Ukraine risks inflating away any gains that it has achieved in its disinflation campaign with little gain in GDP or employment.

Figure 1. Assets of the Federal reserve. Anton Bobrov, the University of California, Berkeley. Read on topic:. The Reform Index. Read more title. Land market.