Like, what's its purpose, and why is it so different from normal open-market operations? It seems like its just like open market operations, but just buying longer-term treasuries?
Like, what's its purpose, and why is it so different from normal open-market operations? It seems like its just like open market operations, but just buying longer-term treasuries?
The official role of the central bank is to keep the amount of money roughly at the same level as (or actually around 2% higher than ) the amount of goods and services in an economy. Think if there's a pair of shoes that's 50 Dollars there needs to the printed 50 Dollar Bill for you to be able to buy it. It's not an easy task to figure this out. If there's too much money in an economy you'll have inflation, meaning the nominal value of things gets larger and everything get's expensive. When there's more goods than money to spend you have deflation. Liberal theorists say deflation is bad because it would mean having money and not spending it means you'll be able to buy more things as time goes on, which disinsentives spending it for goods, which would slow down demand and production. So that's why they try to balance it.
In liberal theory the central bank has 3 intruments to control the money supply, one of them being quantitative easing. The mechanism involes the central bank buying government bonds and other securites. To pay for this the central bank need to print money and thus increasing the money supply in the economy.
To directly answer the question: Because QE affects money supply, while open-market operations do not. Open-market operations just shift the money from one agent to another.
I'd recommend looking into MMT as it provides a way better understanding of fiscal and monetary policy and shows how all this fuckery is self-imposed. https://www.youtube.com/watch?v=7sd-ElKMbPI
Simple but wrong might be:
Central bank printer goes brrr: Good, inflation for companies, good
Printing money for people: Bad
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Yeah you're right. I mean I just described what the official role of the central bank is and what they are trying to achieve. Not that QE (or the other instruments) are actually working. It's evident that it's not working
sorry this is so late, I've been working all week. What do you mean open-market operations don't affect the money supply? I was under the impression that they did increase/decrease the money supply depending on whether bonds were being bought or sold by the fed.
Ah yes sorry you're absolutely right. I used the term sloppily. I meant it in the way that regular market activity just shifts money from one market participant to another. While the central bank does so money supply when it engages in the market.