Quantitative Easing Impact on Market Liquidity and Inflation

Abstract

Quantitative easing (QE), mainly including large-scale purchasing, affects the market and economy by liquidity channel. This channel includes two aspects: loan supply and liquidity increases caused by large-scale purchasing. The influence of QE on liquidity is not clear enough. Also, whether such a liquidity creation will lead to inflation needs to be emphasized. This article provides an in-depth analysis of the impact of quantitative easing (QE) on liquidity creation and explores the potential relationship between QE and inflation. The article, based on investigating previous research, gives an overview of the process of quantitative easing’s impact on liquidity creation through large-scale purchasing and lending channels. Meanwhile, the article discusses the possibility of quantitative easing leading to inflation. In conclusion, large-scale purchasing creates market liquidity by increasing loan supply and affecting the securities market. Furthermore, the investment shows that quantitative easing would not generate inflation. The article provides an overview of liquidity creation caused by QE and the potential possible relation between QE and inflation and provides a reference to the future.