Japanese And American Quantitative Easing

Shawkat Hammoudeh is Professor of Economics and International Business at Drexel University. He can be reached at hammousm@drexel.edu. Quantitative easing (QE) is an economic tool that is aimed at getting more out of a tired monetary policy in an interest rate environment that is zero-bound. It primarily targets the quantity of money instead of the interest rate, when the economy is in a 'liquidity trap' - that is, when the interest rate is very low and lowering it further will not stimulate economic activity. In this article, I compare Japanese and American QE in terms of objectives, tools and duration. The Bank of Japan (BOJ) pursed QE in the period 2001-06, while the US Federal Reserve has embarked on QE since September 2008. I will also discuss whether Japan has embarked on QE since October 2008, but using the American model this time, and whether the Fed is undertaking another round of QE to fight deflation.