A central bank policy of purchasing government bonds and other financial assets to inject reserves into the banking system and lower long-term interest rates when conventional rate tools are exhausted.
Deeper Explanation
QE works through two channels: (1) lowering long-term yields by increasing demand for bonds, which reduces borrowing costs and raises asset prices through the discounting effect; (2) the "portfolio balance" effect — investors who sell bonds to the central bank must reinvest in other assets (equities, corporate bonds, real estate), pushing prices up across risk assets. Dalio's framework identifies QE as the primary policy tool of the "beautiful deleveraging" — reducing real debt burdens without deflationary depression by combining debt restructuring, austerity, and money printing in appropriate proportions. The withdrawal of QE (quantitative tightening, or QT) reverses these effects and historically precedes volatility increases.
Continue Learning
Go deeper into the Macro school — frameworks, case studies, and decision systems.