Okay, this is from latest events.

Countries like USA & Japan have successfully used QE to stimulate the economy, but what stops European Central Bank from implementing it?

If they decide to use it what will happen to stocks and bonds? How will the investors react? Most economists also say that it wont work well in Europe, why?

  • 2
    $\begingroup$ "successfully" [citation needed] $\endgroup$
    – 410 gone
    Commented Jan 8, 2015 at 11:49
  • $\begingroup$ Exactly as @EnergyNumbers says, QE is one of the single most misunderstood banking interventions in place. It was used by the USA and the UK to stop their monetary systems imploding, which is not exactly how most would characterise "stimulate". $\endgroup$
    – Lumi
    Commented Jan 8, 2015 at 13:39

1 Answer 1


Europe is a banking based continent, in contrast to the US where financial markets play a prominent role. As a result, wealth effects in Europe are much smaller than in the US. QE thus has a smaller favorable effect on the economy.

You are right, they should implement it given the low inflation level present for an extended period. But as shown by history, the ECB always reacts later and less agressive than the FED. This is because the ECB has a sole objective of keeping inflation close but below 2% (imposed by the Germans having experienced periodes of hyperinflation). Even today, the germans and some other hawks are still reluctant to pull out the big canon.

QE leads to an increase in bond prices, and supports equities as well. However, whether or not equities go up, depends more on how people react.

  • $\begingroup$ @QuantK is right that financial markets play a more prominent role in the US than in Europe. Specifically, equities are owned by a larger fraction of the public in the US than in Europe, implying that the wealth effects of QE are more concentrated among the wealthy in Europe. QE efficacy is thus reduced due to marginal propensities to consume falling in wealth. Moreover, home ownership is much more common in the US than in Europe, and American households' balance sheets are more tied up in mortgages. This implies more broad-based wealth effects through housing prices in the US. $\endgroup$
    – John
    Commented Jan 7, 2015 at 20:17
  • $\begingroup$ I am also curious how Germany, where the ECB is conveniently located, might feel about how QE might effect the value of the Euro, since Germany is not in dire need of rescue like some European nations. It is a bit of a double-edged sword, right? Germany exports and so a drop in the value of the Euro might increase trade with Russia...but Russia's currency is taking a simultaneous plunge. Furthermore, Germany needs the markets in other European nations to continue consuming German products. It's all a very interesting situation, I think. $\endgroup$
    – 123
    Commented Jan 8, 2015 at 1:47

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