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Quantitative easing, macroeconomic stability and economic policy effectiveness

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  • Richard Cebula
  • Fabrizio Rossi

Abstract

Purpose - This study mathematically aims to evaluate the implications of a central bank’s adoption of a policy of quantitative easing (QE)/relative QE. Design/methodology/approach - It is shown, within an investment-savings (IS)-liquidity preference-money supply (LM) framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists. Findings - Furthermore, it is shown here that the presence of QE increases the effectiveness of traditional discretionary monetary and fiscal policies. Originality/value - The study shows, within an IS-LM framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.

Suggested Citation

  • Richard Cebula & Fabrizio Rossi, 2021. "Quantitative easing, macroeconomic stability and economic policy effectiveness," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 14(4), pages 468-475, July.
    • Handle: RePEc:eme:jfeppp:jfep-06-2021-0149
    DOI: 10.1108/JFEP-06-2021-0149
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    Keywords

    Monetary policy; Monetary systems;

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