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I’m a little confused about the distinction between open market operations of a central bank and quantitative easing/tightening. My textbook essentially defines both as instances where the central bank increased/decreases the money supply by buying or selling bonds.

The only distinction that it gives is that open market operations tend to be aimed at achieving a certain interest rate, and quantitative easing/tightening tends to have a fixed target for the value of assets to be bought or sold.

I’m sure there must m be more of a distinction than this?

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    $\begingroup$ The Wikipedia article is quite good and comprehensive. It is mainly broader in the composition of assets (types of securities) and larger than traditional OMO and done because traditional ways to stimulate the economy are deemed insufficient. $\endgroup$
    – AKdemy
    Nov 23, 2022 at 4:20

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The distinction is literally just in the scope. Large open market operation (OMO) is how QE is defined. See Fed definition of QE:

a large-scale asset purchases—in the hundreds of billions of dollars range

There isn't really much more to it. OMO that is measured in hundreds of billions is QE.

The textbook is correct that QE had different goal than regular OMO, but goal is inconsequential for definition of QE.

The distinction is only about size. OMO is small asset purchase, QE is large asset purchase. However, historically some QE did focused on unconventional assets.

In the US there were 4 rounds of QE (see Fed here, here, here or here) :

QE 1 (circa 2009/early 2010): During this QE Fed purchased a lot of unconventional assets (which is what probably creates confusion in minds of many people about what QE is).

QE 2 (circa 2010/2011): This was in essence just large OMO, Fed mainly focused on buying large amount of treasuries.

QE 3 (circa 2012): Fed went back to purchasing unconventional assets.

QE 4 (circa 2020): Here Fed again changed course and purchased predominantly government securities (although some unconventional assets were part of QE 4 as well).

As you can see from the historic examples above, it does not matter what assets Fed buys. Convention or unconventional or mix of conventional and unconventional - all large asset purchases are known as QE.

Goals also do not matter, the QE 4, which was done to deal with pandemic, had clearly completely different goals from QE 1-3.

This is also just evidence from Fed around the globe different central banks also implemented QE with varying goals and varying assets included in the plans.

Suma sumarum what distinguishes QE and OMO is size. Up to some threshold X asset purchase would be considered OMO and above threshold X it becomes QE. For example, Fed considers asset purchases that can be measured in hundreds of billions dollars QE. Different countries and researchers might have different threshold X (since currency value varies and there might be some disagreements of what is large enough), but again generally its defined in terms of size.

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    $\begingroup$ @1muffon1. The distinction is in scope, but also in the composition of assets, no? $\endgroup$
    – EB3112
    Nov 22, 2022 at 23:07
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    $\begingroup$ Hi @1muffon1. I disagree with your definition-focused approach. Yes, of course QE is a large scale OMO, but unlike conventional OMO: QE was perceived and designed to operate through different transmission channels. So, the composition of QE (as a subset of unconventional monetary policy) vs OMO, matters. Therefore, to the OP: I would recommend researching the many transmission channels of monetary policy. This is useful approach in the distinction of conventional OMO vs unconventional OMO (QE). For starters: frbsf.org/economic-research/wp-content/uploads/sites/4/… $\endgroup$
    – EB3112
    Nov 23, 2022 at 10:08
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    $\begingroup$ Again, I disagree. QE2 was long-debt. This makes it unconventional. It therefore makes it different from conventional OMO. In the spirit you seek to uphold, I am the one making the demarcation. $\endgroup$
    – EB3112
    Nov 23, 2022 at 16:52
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    $\begingroup$ No @1mufflon1. I never said experts at the Fed are lying. I would say you've cherry picked your quote to fit your worldview. Nowhere in that document do the Fed argue that conventional and unconventional monetary policy are the same. the process is the same (they buy and sell things). But the process of me getting punched by my little sister, and the process of me getting punched by Mike Tyson is also the same. The outcomes however, are very different. Therefore, the idea that definition is independent of scale, is unsound. The Fed do not say this in their paper. Scale + composition matters $\endgroup$
    – EB3112
    Nov 24, 2022 at 8:46
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    $\begingroup$ Hi @1mufflon1. I am not in the business of protracted debates online. There is no listening involved in an online debate, and no quarter given. And furthermore, both of our lives are too busy for that. Best to call this one a day. $\endgroup$
    – EB3112
    Nov 24, 2022 at 9:20

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