Coming Soon to a Central Bank Near You

February 26, 2009

The Governor of the Bank of England announced yesterday that the Bank will begin to engage in a policy of “quantitative easing.”  If just reading that phrase makes your head spin in an array of economics you cannot understand, I have found just the thing for you.  This excellent interactive feature by the Financial Times clearly explains how monetary policy usually works, and why in bad times, Central Banks occasionally attempt to do “unorthodox” (economic jargon for “crazy”) things, and what the benefits and risks of doing so are.

Quantitative easing is one of these unorthodox things.  It is often described as printing money, but actually has to do with the Central Bank creating money to intervene more actively in the economy.  I’ll let the FT explain further, as they do a good job at it.   The added bonus of listening to the end is that the video features the phrase “willy-nilly,” a term you don’t often hear in the context of Central Bank policy.

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