Quantitative easing (QE) is a potentially very powerful tool that could pull economies out of recession and deflation. However, to work fully it may have to be combined with additional measures to encourage the banks to lend or, as a last resort, a substantial money-financed fiscal expansion. The problems posed by the exit strategy and the risk that inflation runs out of control suggest that policy-makers will err on the side of caution, limiting the effectiveness of QE.
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