<p>In usual open market operations, the central bank will create money, use this money to buy short term Treasury securities from maybe banks, individuals, institutions in the open market. This creates more demand for these securities. Hence their price goes up and yield goes down. This newly generated money goes into the banking system. With more money, banks have more cash and have more reserves. With more reserves banks may be more willing to lend to each other and to individuals also. This lowers the short term inter banking interest rate. This way, there is more money in the system and there is a downward pressure on rates. With short term Treasuries, central bank is less exposed to the interest rate risk. </p>

<p>In quantitative easing (QE), both the purpose and the mechanism are different. First of all, QE usually will be performed in a situation which is not 'typical' money supply shortage or economic activity slowdown. This will either happen in a crisis where aggressive boost is required or when central bank has run out of its primary weapons. Maybe it already lowered interest rates to zero.   The central bank in these situations might buy securities of different kinds which can be long term treasuries, private securities, securities in a particular area of market which, the central bank thinks, needs to be revived. This certainly will not just increase money into the system, but further lower the yield and ease out specific markets such as mortgage based securities by reducing the risk spread. </p>

<p>One other criterion is the size of the increase in balance sheet of central bank. In QE there is usually a much larger change in the balance sheet of central bank. Also, as there are different kinds of securities (including long term securities) in the assets of central bank which are not necessarily treasuries or highly rated securities, the central bank itself is exposed to more risk. </p>

<p>Ben Bernanke said in 2009 that, the QE they exercised was not pure QE but credit easing, because in pure QE, the central bank will not discriminate between what securities it is buying. However, according to him, Fed did target few specific markets. Targeting few specific markets is more like credit easing and not pure QE. </p>

CC BY-SA 3.0
2016-12-15T14:01:09.277Z
Would QE have any effect on the interbank lending rate (if that rate was significantly above zero)?
erv
CC BY-SA 3.0
2016-12-15T20:00:18.947Z
Yes, it will have. You are pumping in more money into the system and that money goes into the banking system only. 
Q.E will work the same way when the inter-bank rates are higher and are not responding to the rate cuts by the central bank.
Sub-Optimal
CC BY-SA 3.0
2016-12-16T03:59:22.663Z
So to be clear, despite that, QE isn't really about fiddling with rates.  It's about injecting large amounts of liquidity, whereas regular central bank operations are more simply about the target interest rate?
erv
CC BY-SA 3.0
2016-12-16T05:45:10.617Z
Yes. The rate is not the only target for Q.E because it may be zero already.
Sub-Optimal
CC BY-SA 3.0
2016-12-16T06:00:11.377Z
More precisely, you can say that Q.E could be performed when the inter-bank rates are no longer in control of the central bank. They could either be zero or too high and not responding to central bank calls. Q.E would also consist of various actions at the same time such as Fed opening up the discount window for the investment banks also and opening up of foreign credit swaps. All these actions will effect the inter-bank rates also eventually but that was not the objective in the first place.
Sub-Optimal
CC BY-SA 3.0
2016-12-16T06:59:09.860Z
Cheers for that Abhinav.  I'm going to tick your reply as 'answered', although I'm not in a position to accurately judge that.
erv
CC BY-SA 3.0
2017-05-06T17:17:02.200Z
I don't agree with some of the comments.  I think the purpose of QE is to boost the economy by driving down long term interest rates (bond yields, mortgage rates etc).  Thus QE acts on long term rates whereas traditional monetary policy acts on short term rates.   I think the focus on liquidity injection is misleading.  This extra liquidity just sits at the central bank in a deposit facility.
dm63
CC BY-SA 4.0
2019-08-23T10:23:39.337Z
QE does inject liquidity and it bloats up the central bank's reserves. The reduction in long term interest rates is incidental. Liquidity injection and thawing of frozen markets remains the prime objective.
Sub-Optimal
CC BY-SA 4.0
2024-07-19T08:22:13.487Z
The motivation for QE can be different from one QE programme to the next. Still, if the purchased assets are longer-maturity bonds, then *for sure* QE will act on long-term interest rates. That was the motivation, objective and outcome of many QE programmes around the world after the financial crisis and during the zero-lower-bound period. Some other specific QE programmes around the world may be inspired by the objective to thaw a frozen market, but this does not hold for the vast majority of QE in advanced economies. Bernanke (as well as the ECB, BoJ, BoE, ...) targeted long-term bonds.
Wecon
CC BY-SA 4.0
2024-07-19T08:27:54.950Z
Having targeted long-term bonds in their QE programme (QE=larger central bank balance sheet) does imply that, more specifically, the quantitative easing was, as Ben said, also credit easing (CE=different composition of the central bank balance sheet). And the effect on the long-term interest rate comes from that interpretation: compression of the term premium by counting on the imperfect substitutability of assets across different maturities.
Wecon
CC BY-SA 4.0
2016-12-15T12:12:31.743Z
2020-05-08T15:08:53.830Z
2020-05-08T15:08:53.830Z
Sub-Optimal
<p>Quantitative easing of monetary policy includes bank rate,Cash reserve ratio and Open market operation in our RBI.But the regular central bank operation is defined as currency swap,spot market,called on money,exchange rate volatisation,maintaining ledger balance sheet,determining repo rate and reverse repo rat in a bank clearing day.As,it functions as a banker's bank of a country.while the various exchequer of our country rule over their credit creation depending upon its bank asset values.</p>

CC BY-SA 4.0
2024-07-19T08:11:31.693Z
RBI = reserve bank of india?
Wecon
CC BY-SA 4.0
2024-07-16T12:17:19.610Z
2024-07-16T12:17:19.610Z
Ronjon Handique
<p>Most articles describe QE as purchasing government securities on the market.  I thought that was what ordinary day to day operations of the central bank were in their efforts to maintain a target interest rate.  So if they aren't buying government securities day to day, what is it they do to manage the bank lending rate?</p>

CC BY-SA 3.0
2016-12-15T20:37:33.660Z
about 3 trillion dollars
Lassie Fair
<government-debt><quantitative-easing>
What's the difference between Quantitative Easing and regular central bank operations?
erv
# What's the difference between Quantitative Easing and regular central bank operations?

(Asked by: username_0 on 2016-12-15)

Most articles describe QE as purchasing government securities on the market. I thought that was what ordinary day to day operations of the central bank were in their efforts to maintain a target interest rate. So if they aren't buying government securities day to day, what is it they do to manage the bank lending rate?

**Tags:** government-debt, quantitative-easing
> **Comments:**
> **username_1**: about 3 trillion dollars  

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## 2 answers

### Answer by username_2 on 2016-12-15. Score: 1 | Accepted answer

In usual open market operations, the central bank will create money, use this money to buy short term Treasury securities from maybe banks, individuals, institutions in the open market. This creates more demand for these securities. Hence their price goes up and yield goes down. This newly generated money goes into the banking system. With more money, banks have more cash and have more reserves. With more reserves banks may be more willing to lend to each other and to individuals also. This lowers the short term inter banking interest rate. This way, there is more money in the system and there is a downward pressure on rates. With short term Treasuries, central bank is less exposed to the interest rate risk.

In quantitative easing (QE), both the purpose and the mechanism are different. First of all, QE usually will be performed in a situation which is not 'typical' money supply shortage or economic activity slowdown. This will either happen in a crisis where aggressive boost is required or when central bank has run out of its primary weapons. Maybe it already lowered interest rates to zero. The central bank in these situations might buy securities of different kinds which can be long term treasuries, private securities, securities in a particular area of market which, the central bank thinks, needs to be revived. This certainly will not just increase money into the system, but further lower the yield and ease out specific markets such as mortgage based securities by reducing the risk spread.

One other criterion is the size of the increase in balance sheet of central bank. In QE there is usually a much larger change in the balance sheet of central bank. Also, as there are different kinds of securities (including long term securities) in the assets of central bank which are not necessarily treasuries or highly rated securities, the central bank itself is exposed to more risk.

Ben Bernanke said in 2009 that, the QE they exercised was not pure QE but credit easing, because in pure QE, the central bank will not discriminate between what securities it is buying. However, according to him, Fed did target few specific markets. Targeting few specific markets is more like credit easing and not pure QE.

> **Comments:**
> **username_0**: Would QE have any effect on the interbank lending rate (if that rate was significantly above zero)?  
> **username_2**: Yes, it will have. You are pumping in more money into the system and that money goes into the banking system only.  Q.E will work the same way when the inter-bank rates are higher and are not responding to the rate cuts by the central bank.  
> **username_0**: So to be clear, despite that, QE isn't really about fiddling with rates.  It's about injecting large amounts of liquidity, whereas regular central bank operations are more simply about the target interest rate?  
> **username_2**: Yes. The rate is not the only target for Q.E because it may be zero already.  
> **username_2**: More precisely, you can say that Q.E could be performed when the inter-bank rates are no longer in control of the central bank. They could either be zero or too high and not responding to central bank calls. Q.E would also consist of various actions at the same time such as Fed opening up the discount window for the investment banks also and opening up of foreign credit swaps. All these actions will effect the inter-bank rates also eventually but that was not the objective in the first place.  
> **username_0**: Cheers for that Abhinav.  I'm going to tick your reply as 'answered', although I'm not in a position to accurately judge that.  
> **username_3**: I don't agree with some of the comments.  I think the purpose of QE is to boost the economy by driving down long term interest rates (bond yields, mortgage rates etc).  Thus QE acts on long term rates whereas traditional monetary policy acts on short term rates.   I think the focus on liquidity injection is misleading.  This extra liquidity just sits at the central bank in a deposit facility.  
> **username_2**: QE does inject liquidity and it bloats up the central bank's reserves. The reduction in long term interest rates is incidental. Liquidity injection and thawing of frozen markets remains the prime objective.  
> **username_4**: The motivation for QE can be different from one QE programme to the next. Still, if the purchased assets are longer-maturity bonds, then *for sure* QE will act on long-term interest rates. That was the motivation, objective and outcome of many QE programmes around the world after the financial crisis and during the zero-lower-bound period. Some other specific QE programmes around the world may be inspired by the objective to thaw a frozen market, but this does not hold for the vast majority of QE in advanced economies. Bernanke (as well as the ECB, BoJ, BoE, ...) targeted long-term bonds.  
> **username_4**: Having targeted long-term bonds in their QE programme (QE=larger central bank balance sheet) does imply that, more specifically, the quantitative easing was, as Ben said, also credit easing (CE=different composition of the central bank balance sheet). And the effect on the long-term interest rate comes from that interpretation: compression of the term premium by counting on the imperfect substitutability of assets across different maturities.  

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### Answer by username_5 on 2024-07-16. Score: 0

Quantitative easing of monetary policy includes bank rate,Cash reserve ratio and Open market operation in our RBI.But the regular central bank operation is defined as currency swap,spot market,called on money,exchange rate volatisation,maintaining ledger balance sheet,determining repo rate and reverse repo rat in a bank clearing day.As,it functions as a banker's bank of a country.while the various exchequer of our country rule over their credit creation depending upon its bank asset values.

> **Comments:**
> **username_4**: RBI = reserve bank of india?  

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