Quantitative Easing vs. Quantitative Tightening: Post-2008 Examples and Implications

August 13, 2023


In the aftermath of the 2008 global financial crisis, central banks embraced unconventional tools like quantitative easing (QE) to stabilize economies. While QE injected liquidity and spurred growth, quantitative tightening (QT) aimed to normalize monetary policy. This article dives into the mechanisms, impacts, and real-world instances of both QE and QT, highlighting their contrasting effects on global economies.

Understanding Quantitative Easing and Tightening

Quantitative easing involves central banks purchasing assets, often government bonds, to boost liquidity, lower long-term interest rates, and stimulate economic activity. Conversely, quantitative tightening refers to the process of reducing a central bank’s balance sheet size through asset sales or allowing assets to mature without replacement. QT seeks to unwind the excess liquidity created during QE and restore normalcy.


Quantitative Easing: Post-2008 Examples

  1. United States:In response to the 2008 crisis, the U.S. Federal Reserve initiated multiple QE rounds. These involved buying government and mortgage-backed securities, aiming to lower rates, boost borrowing, and foster economic recovery.
  2. European Central Bank (ECB):The ECB introduced QE, exemplified by the Asset Purchase Program (APP). Through purchasing government and corporate bonds, the ECB aimed to combat deflation risks and enhance lending activity.
  3. Japan:Japan’s “Abenomics” strategy saw the Bank of Japan employing QE. The central bank expanded asset purchases, targeting government bonds and riskier assets, to counter deflation and encourage growth.
  4. India:The Reserve Bank of India (RBI) used open market operations (OMOs) akin to QE. By purchasing government securities, the RBI aimed to infuse liquidity, manage interest rates, and support economic expansion.

Quantitative Tightening: Post-2008 Examples

  1. United States:Following years of QE, the U.S. Federal Reserve embarked on quantitative tightening in 2017. This gradual process involved letting bonds mature without reinvestment, reducing the balance sheet size.Contrast: Quantitative tightening marked a shift from expansionary to contractionary policy, potentially leading to higher long-term interest rates and reduced liquidity.
  2. European Central Bank (ECB):The ECB scaled down its bond purchases and concluded the APP in late 2018. This marked a move from QE to normalizing monetary policy.
  3. Japan:The Bank of Japan transitioned from aggressive asset purchases to yield curve control, managing long-term interest rates for improved policy effectiveness.
  4. India:The Reserve Bank of India adopted tightening measures like raising key interest rates and reducing liquidity to manage inflation and stabilize the economy.

Going Forward:

Lessons Learned and Future Considerations

The post-2008 era provided central banks valuable insights:

  1. Balancing Act: Striking a balance between QE during crises and QT to normalize policy is essential.
  2. Communication: Effective communication is key to prevent market shocks during the transition from QE to QT.
  3. Unintended Consequences: Awareness of QE’s impact on asset prices and income inequality calls for a cautious approach.
  4. Gradual Approach: A gradual, well-communicated transition from QE to QT helps minimize disruptions.


Implications of Quantitative Easing and Tightening

  1. QE Implications:
    • Stimulating Growth: QE fuels growth by lowering borrowing costs and encouraging lending.
    • Asset Price Inflation: Concerns arise regarding asset price inflation and its potential impact on income inequality.
    • Lowering Long-Term Rates: QE aims to reduce long-term interest rates, incentivizing borrowing and spending.
  2. QT Implications:
    • Normalization: QT aims to restore policy normalcy and reverse extraordinary crisis measures.
    • Market Volatility: QT can induce market volatility as central banks shrink balance sheets, potentially affecting asset prices.
    • Higher Interest Rates: QT could result in higher long-term interest rates, impacting consumer and business borrowing costs.


The post-2008 landscape witnessed central banks employing quantitative easing and tightening measures. While QE aimed to stimulate economies via liquidity injection and lower rates, QT sought policy normalization. The interplay of these strategies underscores the intricacies of modern monetary policy and the significance of balanced calibration to ensure economic stability and growth.


Written by ChatGPT 3.5

Strategy Boffins Team
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