The Quantitative Easing Experience: A Comparative Study of Unconventional Monetary Policies and Their Influence in the US and Europe

Martje Marieke Schmidt

Student thesis: Master thesis


In the face of weak growth and severe deflationary risks the European Central Bank (ECB) decided to introduce a large-scale quantitative easing (QE) program in March 2015. The ECB thus follows the Japanese, UK, and US central bank in using unconventional monetary policies to stimulate the economy when interest rates are close to zero. This study especially focuses on the US experience with QE and analyses how these findings can be applied to the ECB’s QE program.
The primary objective of this thesis is to examine the US QE program and its influence, to draw a comparison to the European program, and establish pivotal success criteria of QE. The study is based on an extensive literature review of both qualitative and quantitative research. The comparative analysis also uses information and recent data gathered from the respective central banks.
The US and Euro area differ largely in their institutional and financial systems, and the QE program designs have been tailored to the needs of their economies. In the light of empirical evidence and the author’s view, there are a few key lessons that can be learned from the US program: Open-ended QE with a sizeable effect on the central bank’s balance sheet that is tied to the policy goal signals a credible commitment and has been most powerful in affecting long-term rates. Furthermore, managing inflation expectations involve clear and consistent communication to the public about the monetary policy actions.
The main transmission mechanisms of QE in the US were the portfolio balance channel and the signaling channel. In Europe, the bank lending and exchange rate channel could play a pivotal role. A unique aspect of the ECB’s QE program is its negative interest rate policy, which should encourage bank lending and further supports the exchange rate channel through currency depreciation. The impact on inflation will ultimately depend on the banks’ willingness to lend and whether the ECB’s accommodative stance successfully restores confidence among market participants. This increases the importance of credible fiscal and structural policies that support a healthy banking system and economic growth.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2016
Number of pages88
SupervisorsSøren Plesner