Three Views of QE: Irrelevance, Insurance, and Irreversibility
- 21 hours ago
- 2 min read
Recommended Reading / ListeningGlobal Economics – Student Research
By: Patrick Gorman, The Quinnipiac University Global Economics Research Team
As debates around monetary policy heat up, the Global Economics Research Team recommends reading “Three Views of QE: Irrelevance, Insurance, and Irreversibility” and listening to the related podcasts. Links below.
In a recent post on Macroeconomic Policy Nexus, economist David Beckworth examines three different ways economists think about Quantitative Easing (QE) and why its effectiveness has varied over time. The discussion is especially relevant given ongoing debates about the Federal Reserve’s balance sheet and the role of unconventional monetary policy.
The first framework, the Irrelevance View, argues that QE mostly changes the form of government debt and does little to reduce overall economic risk unless it changes expectations about future monetary policy. From this view, QE matters mainly as a signal about future policy, not because of the asset purchases themselves. The second framework, the Insurance View, draws on work discussed by Tyler Muir and emphasizes QE’s role during periods of financial stress. Under this view, QE reduces risk for stressed financial institutions, helping to lower long-term interest rates and stabilize markets.
The third framework, the Irreversibility View, emphasizes that QE works best when people believe the policy will be sustained. Beckworth uses pandemic-era QE (QE4) as an example, noting that its stronger impact reflected a sense of permanence, which shaped expectations and economic behavior. He concludes that while QE should not be used routinely, it remains an important tool during crises when paired with credible monetary frameworks and clear communication strategies.
Recommended Links
Main Article: Three Views of QE: Irrelevance, Insurance, and Irreversibility
Podcast References:Macro Musings with David Beckworth – Tyler Muir on How to Understand the Fed’s Quantitative Easing
Macro Musings with David Beckworth – Scott Sumner on Monetary Policy Confusion in Current Policy Debates
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