Potential Risks of Implementing Quantitative Easing Monetary Policy

Abstract

As a result of the global recession caused by the 2020 COVID-19 pandemic, many countries adopted unconventional monetary policies. In response to the phenomenon of hyperinflation, the implementation of quantitative easing policies became the solution for many central banks to stabilise inflation. This paper will discuss quantitative easing monetary policy, the unlimited expansion model of monetary policy in support of fiscal policy, and quantitative tightening monetary policy, using the measures implemented by the Federal Reserve and the European Central Bank in response to the COVID-19 epidemic and their effects as examples. It is concluded that by analysing the forms that quantitative tightening can take, it is pointed out that the central bank maintains the market with complete certainty by signaling to participants that it is going to start implementing quantitative tightening and stating that it will only lead to a natural loss of bonds and won't involve any active sales, but at the same time it will limit the flexibility of the central bank's policy.