US Federal Reserve building

Publication Type

QE: A User's Guide

Joseph E. Gagnon (PIIE) and Brian Sack (D. E. Shaw group)

Policy Briefs 18-19
Photo Credit: PIIE/Jeremey Tripp


This Policy Brief draws on the literature measuring the effects of quantitative easing (QE) as well as the historical experience in implementing QE to lay out a simple strategy for how to use QE. It makes a proposal that arguably transitions most effectively from the interest rate adjustment process that central banks have employed with their primary policy instrument and shares many of the desirable properties of traditional monetary policy.

In particular, central banks should characterize QE in terms of the stock of long-term asset holdings and should announce purchases of assets in discrete increments that are designed to deliver macroeconomic stimulus equivalent to the policy rate cut that they would otherwise desire to implement. For the United States and some other countries, research suggests that a purchase of long-term bonds equivalent to 1.5 percent of GDP has a stimulative effect roughly equal to a cut in the policy rate of 0.25 percentage point.

Moreover, central banks should convey that these adjustments will be made under a policy approach that responds routinely to economic developments and displays considerable inertia, as has typically been the case with the conventional policy interest rate.

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