Media Briefings

US QUANTITATIVE EASING: The impact on other countries’ economies

  • Published Date: February 2018

The series of quantitative easing programmes implemented by the US Federal Reserve in response to the global financial crisis have had variable effects on capital flows to emerging market economies, in part depending on the macroeconomic outlook for the United States. Research by Marcel Fratzscher, Marco Lo Duca and Roland Straub, published in the February 2018 issue of the Economic Journal, provides new evidence of the impact of US quantitative easing on the economies of 52 other countries.

The 2007-09 global financial crisis triggered unprecedented policy interventions by central banks around the globe. After cutting policy rates to the zero lower bound, several central banks launched so-called ‘non-standard’ monetary policy measures as a response to the crisis. The Federal Reserve has been among the most active central banks, implementing several types of non-standard measures (quantitative easing) during different periods.

Policy-makers in emerging markets have criticised US quantitative easing, arguing that it created excessive global liquidity, and thus caused a massive acceleration of capital flows to emerging market economies between 2009 and 2012. In turn, this capital flow surge is widely blamed for currency appreciation pressures, a build-up of financial imbalances and asset price bubbles in emerging market economies, high credit growth and the threat of overheating of domestic economies.

The new study analyses the effects of the Federal Reserve’s quantitative easing both on capital flows in the United States and 52 other countries. The researchers analyse different types of US unconventional monetary policy measures in order to understand whether and why the different programmes – QE1, QE2 and QE3 – have exerted different effects on US and foreign markets. A distinction is made between announcements of Fed interventions and the actual market operations.

The analysis shows that QE1 policy announcements and liquidity operations (that is, collateralised loans to banks) triggered primarily a portfolio rebalancing into riskier market segments, with capital flowing mainly into US equity funds. In contrast, QE2 and, to some extent, QE3 announcements and Treasury purchases had the strongest impact on inflows to emerging market economies.

In addition, the results suggest a link between US domestic macro-financial conditions and the transmission of quantitative easing to portfolio flows across countries and instruments. In particular, in periods when macroeconomic uncertainty is lower and the US outlook is positive, quantitative easing announcements are transmitted with more intensity to portfolio flows outside the United States. The same holds for purchases although the link with macro conditions is weaker.


Notes for editors: ‘On the International Spillovers of US Quantitative Easing’ by Marcel Fratzscher, Marco Lo Duca and Roland Straub is published in the February 2018 issue of the Economic Journal.

Marcel Fratzscher is president of DIW Berlin. Marco Lo Duca and Roland Straub are at the European Central Bank.

For further information: contact Romesh Vaitilingam on +44-7768-661095 (email:; Twitter: @econromesh); or Marco Lo Duca via email: