Qualitative Easing: The Federal Reserve and Eurosystem’s Balance Sheet Policies During the Financial Crisis: A Comparative Analysis

In this article, published in the Romanian Economic and Business Review, 2009, 4(3): 165-85, David Howden and I compare the qualitative easing and the quantitative easing of the Fed and the ECB during the financial crisis and the implications for the qualities of the respective currencies.

Qualitative easing has been very important in these policies.

The development of the balance sheet of the Federal Reserve System has been the recipient of increased attention during recent events. The Fed has expanded its balance sheet and also changed its composition in order to support the financial system. As a consequence the average quality of the assets have, on average, deteriorated. In a similar way, the ECB has recently implemented novel balance sheet policies. In this article we compare the balance sheet policies of these two central banks. We assess the differences in policy strategies and deduct consequences concerning the quality of the respective currencies, as well as future directions of monetary policy.

Keywords: Central Bank Balance Sheets, Quality of Money, Balance Sheet Analysis, Monetary Policy, Subprime Crisis.

JEL Classifications: E31, E52, E58, E59, M40