Does Quantitative Easing Drive Inflation? : An Empirical Analysis of the Eurozone

Monetary economics has played a crucial role in helping economies navigate periods of severe financial distress. In response to the global financial crisis and following economic turbulence, the European Central Bank adopted unconventional tools, most notably, quantitative easing (QE), to stabilize markets and stimulate growth. This study examines the relationship between QE and inflation in the Eurozone, addressing the central question: Does quantitative easing drive inflation? Using an Ordinary Least Squares (OLS) regression model with monthly data from February 2012 to December 2023, the analysis incorporates lagged variables to capture delayed effects of monetary policy. The findings indicate that QE has a statistically significant, though modest, positive impact on inflation. These results suggest that while QE contributes to inflationary pressures, its effect is limited in scale, implying that QE may not be optimal as a standalone tool for monetary policymakers. This study contributes to the literature on the monetary effects of QE, offering insights beyond its well-documented influence on financial markets.