Quantitative Easing: Will it generate demand or inflation?
Published: June 2009
Central banks around the world have moved to cut interest rates to record lows, with many in advanced economies going further and embracing full quantitative easing – creating new money to inject into the economy. This paper examines why quantitative easing has been necessary, and whether it is likely to result in higher demand or instead show up in higher inflation. Given the retrenchment in household spending, the risk is that quantitative easing has more impact on prices than output. And, with some first warning signs perhaps already evident in commodity markets, policymakers could face considerable difficulties unwinding the monetary stimulus.