Quantitative Easing and Financial (In)Stability

Many central banks have introduced quantitative easing (QE) as a new policy tool where they massively buy bonds from market participants to provide liquidity to the market, reduce the cost of capital and ultimately foster economic growth. Although such monetary policy measures by the Federal Reserve and the Bank of Japan seem to have had the desired effect in the home market, there are still many open questions about the effectiveness of QE with respect to its global impact. These policies (and unwinding them later on) have an impact on the stability of financial markets and financial institutions, not only in industrialized countries but also in emerging markets.

This project aims to analyze the potential effects of QE, in particular on the pricing of financial assets, the risk taking by banks, and the spillover effects to emerging markets. The project proposes a new approach to address the topic from a banking and finance perspective.

Key questions:

  • How much of the current recovery can actually be attributed to monetary policy intervention, and, in particular, which tool was the most effective?
  • What are the consequences of the enormous monetary expansion for financial markets stability? How does it affect risk-taking by banks, and systemic risk more generally? Are there spillover effects to financial institutions and markets in emerging economies, like India, China, or some African countries?
  • If some day central banks want to reverse their current extremely lax policy stance, what will happen to securities markets and the banking system? Which withdrawal symptoms should we expect, in terms of negative economic growth and financial instability around the world?

Project Team


Closing Conference

The final conference of "Quantitative Easing and Financial (In)Stability" funded by Volkswagen Foundation took place on 1 April 2019 at Goethe University Frankfurt.

The agenda and presentations can be found here, a summary of the event can be found here.


Project Publications

Working Paper

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    QE impact on financial markets ...

    ... in industrialized countries

    ... in emerging countries


    QE impact on financial institutions ...

    ... in industrialized countries

    ... in emerging countries