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5min chapter
Quantitative tightening in the euro area
The Sound of Economics
The Signaling Effect of QE
When central banks did quantitative easing, they were trying to provide lots of cash in the economy. When you announce QE, there's a huge signaling effect and some academic papers. But when you announced QT and you announced that it's going to be really gradual and like watching paint dry, there isn't the same signaling effect. It doesn't happen. And so that makes it much tougher for the central bank to actually pull off QT because the liquidity needs of banks constantly rises effectively.
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