I've been trying to get a clear understanding of exactly what economists mean by Quantitative Easing (QE). It seems to me that different people mean different things by it. I find simplistic analogies such as "it's like printing money" unhelpful.
My best guess from what I've read is that QE applies to the action of a national government that has a fiat currency selling one of its own bonds to its central bank, thereby increasing the government's reserve account balance with that bank.Since most governments hold few, if any, of their own bonds, the bond sold to the central bank would generally be newly issued specifically for this purpose. Importantly, under this meaning, QE is purely a way of the government raising funds, via an increase in its central bank account balance, and says nothing about how those funds might be spent.
I further guess that, when a govt does QE, it generally uses the increased account balance to make payments to the private sector, which may be to individuals or companies, and may be gifts (as in a cash handout to individuals) or purchase of goods or services (as in where a govt undertakes a new infrastructure project, and uses the cash to pay workers and for materials).
This makes perfect sense to me, and seems to align with the 'printing money' analogy. But there are a number of difficulties:
Some sites describe 'helicopter cash' as an alternative to QE. That conflicts with the above understanding of QE as a way of raising funds, not of spending them. Under my understanding, one might do QE in order to finance a helicopter cash strategy.
Some sites say the aim of QE is to lower interest rates, while other sites (and sometimes even the same sites!) say that QE is used when lowering interest rates has ceased to have any effect on economic activity. One of these must be incorrect. Under my understanding, the first is incorrect.
Some sites include as QE the process of the central bank buying bonds from the private sector, which may be government bonds or private sector bonds. That is inconsistent with the above understanding. It does not increase the government's account balance and hence provides no funding for the government to increase spending. Also, it does not differ from what the central bank does as part of business as usual (BAU), which is buying and selling bonds, outright or via repo, in order to manage the cash supply and influence interest rates. The Reserve Bank of Australia calls this activity 'Open Market Operations', and it is a core component of its BAU. So if this is counted as QE it then seems to provide no new information to say that a government has commenced QE.
Some accounts of Modern Monetary Theory (MMT) say that it involves a government creating money without taxing or issuing debt. That would rule out the above notion of QE, which involves the government issuing a bond (debt) to the central bank. Does that mean that QE could not be regarded as a MMT-oriented activity? Also I struggle to work out how such a transaction would be accounted, because it would involve the central bank increasing its liabilities (the government's account balance) but not its assets. Hence it would break the fundamental principle of double-entry book-keeping.
QE as outlined above differs from ordinary deficit spending only by the party to whom the government sells the new bond. In QE it is sold privately to the central bank. In deficit spending it sold to investors, typically through a public auction. In Australia those auctions are conducted by AOFM - the Australian Office of Financial Management. Since the difference is only in who is the first owner of the new bond, I do not see why QE is regarded as radically different from what government's normally do.
I am hoping someone can help me resolve these apparent conflicts and clarify the mechanics of quantitative easing and its relationship, if any, to Modern Monetary Theory.