Definition Quantitive Easing. This involves increasing the money supply by printing more money. It often involves buying government bonds to reduce long term interest rates and encourage private banks to lend more.
Quantitive easing was introduce in Japan in 2001 to try and overcome their deflationary recession. Quantitive easing is often suggested as a solution to a liquidity trap. If short term rates have been cut to 0%, then short term rates cannot fall any more. Therefore, if deflation is still a problem, one solution is to try and increase the money supply and get out of the deflationary cycle.
Some economists argue that quantitative easing can work in cases of deflationary trap. In particular, it is important to change inflationary expectations from deflation to positive inflation
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