How effective is the practice of quantitative easing in a low-interest environment like Malta?

Abstract

The following dissertation studies the main effects that the ongoing European Quantitative Easing (QE) Programme is having on the Maltese economy. This programme has been going on for more than two years now and, amid, political uncertainty in major European countries; many have questioned its effectiveness in certain jurisdictions. The intentions of the programme is to increase demand for investment and encourage spending by introducing new money into the economy through the means of having the European Central Bank (ECB) buying sovereign bonds. Accordingly, through the use of interviews with professional entities and online information and working papers, I compiled the necessary information to study both the direct and indirect effects that this QE programme has had on the Maltese economy as a whole and how effective it was in stimulating our economy. More or less, the resulting feedback from the interviews and certain sources lie on the same page. All sources pointed out that Malta never really needed such programme since our economy was not in the worst of conditions after the series of the recent crises which evolved, and this was because of strong banking fundamentals and the fact that our public debt is mostly held locally. Having said this, QE did leave some tangible effects on the Maltese economy where we saw a general decline in banking profits, retail investors making big gains on trading Malta Government Stocks (MGS) and also numerous corporate taking advantage of the lowinterest scenario by borrowing at lower rates. These results imply that, although the majority will say that QE did not materially affect the Maltese economy, there were some entities that made the most of it.