Quantitative easing explained

By Chris Giles, Cynthia OMurchu, Steve Bernard and Jeremy Lemer

Published: February 5 2009 20:35 | Last updated: February 6 2009 13:40
As the world suffers its worst recession since the second world war, policy makers are searching for the best tools to limit the
downturn. Central banks have rapidly lowered interest rates in order to reduce the cost of borrowing. The hope is to stimulate spending
in the economy now.
So far, it has been to no avail. Confidence disappeared from banks, companies and households in the autumn of 2008 and
unemployment is rising fast in 2009. Without an obvious source of fresh demand, central banks are moving to open the way to more
unorthodox approaches to address the crisis.
One of those is quantitative easing. Quantitative easing means - printing more money by central banks; and it used this money to buy
corporate bonds, equities and any assets that it wants from the banks. So it will pump money into the banking system. Also it causes
the yield to rise and interest rates to fall.
Our interactive feature explains how quantitative easing works and how this policy may stimulate the economy.