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 preferencemoney 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.