What is quantitative easing and how does it work?

Quantitative easing (QE) is a monetary policy tool used by central banks to stimulate the economy when conventional methods are insufficient. It involves the central bank purchasing government bonds or other financial assets from commercial banks or other institutions, injecting money into the economy. This increases the money supply and lowers interest rates, encouraging borrowing and spending. By providing liquidity to banks, QE aims to boost lending and investment, which stimulates economic growth. It also helps prevent deflation by increasing inflation expectations. Through QE, central banks effectively create new money, which expands the reserves of commercial banks and encourages them to lend more to businesses and consumers. Overall, QE supports economic activity, enhances financial stability, and helps central banks achieve their inflation and employment targets.