Comparison of US Quantitative Easing Monetary Policy Between 2020 and 2008

Abstract

In March 2020, in response to the negative impact of the COVID-19 pandemic on the US economy and financial markets, the Federal Reserve resumed "unlimited" quantitative easing and launched a new monetary policy tool. This paper compares the difference between this round of QE and the last three rounds of QE in 2008 from the aspects of the current balance sheet of the Federal Reserve, the US fiscal stimulus policy and the Fed's monetary policy tools. Using the VAR model to estimate and compare the effects of the monetary policy tools in the financial market and the previous three rounds of QE. First, The Fed's balance sheet will shrink much bigger and faster than the previous cycle. Second, the Fed will act more urgently than the previous cycle to control inflation quickly to a reasonable range. Third, MBS purchases are positive for the USDX and the DJIA but are negative for the VIX.