Quantitative Easing as an alternative to Conventional Monetary Policy

Evaluation

There are advantages of Quantitative Easing as an alternative to conventional monetary policy when short-term interest rates are at the zero lower bound, such as it can be used to promote lending and spending in the economy. Also the purchase of intermediate and longer term securities could reduce longer term interest rate, increase money supply further and lead to expansion. Another advantage is that it can be easily applied as quick fix because it provides immediate results. Lastly, it raises bank raises,  which allows for more lending. On the other hand,  there are disadvantages it may not actually have the effect of increasing economic activity through the greater loans  and monetary expansion.   For instance if credit and financial markets are significantly damaged, banks might hold the extra liquidity as excess which may not lead to greater loans and monetary expansion. Moreover, Critics believe that quantitative easing leads to the creation of business cycles. They believe that it creates easy money in the economy. The money will eventually lead to someone who is willing to lead out at any costs and in the process might be made to those with high credit risk.