Quantitative easing, macroeconomic stability and economic policy effectiveness

Purpose: This study mathematically aims to evaluate the implications of a central bank’s adoption of a policy of quantitative easing (QE)/relative QE. Design/methodology/approach: It is shown, within an investment-savings (IS)-liquidity preference-money supply (LM) framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists. Findings: Furthermore, it is shown here that the presence of QE increases the effectiveness of traditional discretionary monetary and fiscal policies. Originality/value: The study shows, within an IS-LM framework, that this policy prerogative has, depending upon the aggressiveness which QE is undertaken, demonstrable implications for the conditions under which macroeconomic stability exists.