I'm a math PhD student and have been trying to learn more about the commercial banking system. I've read that Quantitative Easing creates a "dollar prison" and is in fact deflationary but I'm not sure why that's the case. My understanding is that when quantitative easing happens the federal reserve takes bonds on the long end of the curve from (mostly) primary dealers. They then credit the account these banks have at the fed for these bond purchases. I read that these banks have limitations on what they can do with this money, and that they cannot just withdraw from the account and purchase equities with it. They can, however, use this as a reserve asset for making loans. Is this view correct, and are there really any limitations on what banks can do with the money received from central bank bond purchases?

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    $\begingroup$ can you please support the claims you are making with references, and show us what sources did you consulted so far? $\endgroup$
    – 1muflon1
    Dec 20 '21 at 1:44

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