The Political Economy of Central Banking
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The Political Economy of Central Banking

Contested Control and the Power of Finance, Selected Essays of Gerald Epstein

Gerald Epstein

Central banks are among the most powerful government economic institutions in the world. This volume explores the economic and political contours of the struggle for influence over the policies of central banks such as the Federal Reserve, and the implications of this struggle for economic performance and the distribution of wealth and power in society.
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Chapter 19: The Politcal Economy of QE and the Fed: Who Gained, Who Lost and Why did it End?

Juan Antonio Montecino and Gerald Epstein


The Federal Reserve’s “quantitative easing” (QE) policy ended in the fall of 2014, even though economic growth in the US was still sluggish, wage growth was stagnant and inflation was still far below the Federal Reserve’s target of 2%. In this paper we seek some clues to help explain the Fed’s decision by studying the political economy of the QE policy. In particular, we study which business sectors were expected to gain and which ones were expected to lose from the three rounds of QE, indicating, perhaps, the political pressures the business community might have brought to bear on Federal Reserve decisions at that time. This paper is a follow up to Montecino and Epstein (2014) in which we studied the impact of QE I on the large banks that had been counter parties to the Federal Reserve’s Large Scale Asset Purchase Program and on other banks that had significant amounts of mortgage backed securities (MBS) on their balance sheets. We showed that these banks’ profits were increased by QE1 compared to other banks that did not have a large amount of MBS.

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