Quantitative Easing in the Eurozone

Abstract: In response to the outbreak Global Financial Crisis and European Debt Crisis, major central banks took very accommodative monetary policy stances. By slashing interest rates to the zero-lower bound and introducing unconventional monetary policy in the form of quantitative easing they hoped to boost aggregate demand and inflation. This paper investigates the workings of QE, money creation, potential macroeconomic- and other side-effects- of the ECB’s QE programme: “the expanded asset purchasing programme”, and its transmission channels. Though it seems that QE mainly works through portfolio rebalancing, limited evidence has been found on real macroeconomic effects and negative side-effects such as asset bubble inflation. This puts the effectiveness of the ECB’s APP into question.