QE and the Money Multiplier Myth

QE and the Money Multiplier Myth

Frances Coppola

25 years: Economic commentary & banking

In this video, Frances rectifies the myths related to Quantitative Easing, including who creates money, the money multiplier effect, the decreasing effects of interest rates, and increasing pressure on inflation.

In this video, Frances rectifies the myths related to Quantitative Easing, including who creates money, the money multiplier effect, the decreasing effects of interest rates, and increasing pressure on inflation.

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QE and the Money Multiplier Myth

10 mins 20 secs

Overview

In this video, Frances debunks the money multiplier myth, and instead suggests that commercial banks don’t need to have money available at the time that they make a loan. The most widely used form of QE is the large-scale asset purchases (LSAPs), which have the benefit of encouraging investors to diversify their risks. However, during the QE phases, there were some spillover effects, for example, raising prices of corporate bonds and equities.

Key learning objectives:

  • Identify who and how money is created

  • Explain the money multiplier myth

  • What is the most widely used form of QE?

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Summary
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Expert
Frances Coppola

Frances Coppola

Frances has spent 17 years working for assorted banks, retail and investment banks, and even a charity. During her banking career she designed risk management systems for Nat West, and financial & regulatory reporting systems for Midland Bank (now HSBC) and RBS Group. In 2019, she published a book on “people’s quantitative easing”.

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