Macroeconomic and Fiscal Consequences of Quantitative Easing

Tobias Adrian, Christopher Erceg, Marcin Kolasa, Jesper Lindé and Pawel Zabczyk

No 35297, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Quantitative easing (QE) has been criticized for helping fuel the post-COVID inflation boom and causing large central bank losses. In this paper, we argue that QE should be evaluated mainly on its ability to achieve core macro-objectives as well for its effects on the consolidated fiscal position of the government and central bank, although central bank losses can matter to the extent that they may weaken central bank credibility. Using a DSGE model with segmented asset markets, we show how QE can provide a sizeable boost to output and inflation in a deep liquidity trap and can reduce public debt substantially. This contrasts to the rise in public debt that occurs under fiscal expansion and makes QE an attractive tool in a high debt environment. There is more reason for caution in using QE in a "shallow" liquidity trap in which the notional interest rate is only slightly negative: QE runs more risk of causing the economy to overheat, especially if forward guidance has a strong element of commitment, and is more likely to generate sizeable central bank losses. Some refinements in strategy, including the use of escape clauses, can help mitigate overheating risks.

JEL-codes: C54 E1 E3 E5 G12 (search for similar items in EconPapers)
Date: 2026-06
New Economics Papers: this item is included in nep-dge, nep-inv and nep-mon
Note: EFG ME
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Related works:
Chapter: Macroeconomic and Fiscal Consequences of Quantitative Easing (2026)
Working Paper: Macroeconomic and Fiscal Consequences of Quantitative Easing (2025)
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