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I’m a little confused about the distinction between open market operations of a central bank and quantitative easing/tightening. My textbook essentially defines both as instances where the central bank increased/decreases the money supply by buying or selling bonds.

The only distinction that it gives is that open market operations tend to be aimed at achieving a certain interest rate, and quantitative easing/tightening tends to have a fixed target for the value of assets to be bought or sold.

I’m sure there must m be more of a distinction than this?

1muflon1
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    The Wikipedia article is quite good and comprehensive. It is mainly broader in the composition of assets (types of securities) and larger than traditional OMO and done because traditional ways to stimulate the economy are deemed insufficient. – AKdemy Nov 23 '22 at 04:20

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The distinction is literally just in the scope. Large open market operation (OMO) is how QE is defined. See Fed definition of QE:

a large-scale asset purchases—in the hundreds of billions of dollars range

There isn't really much more to it. OMO that is measured in hundreds of billions is QE.

The textbook is correct that QE had different goal than regular OMO, but goal is inconsequential for definition of QE.

The distinction is only about size. OMO is small asset purchase, QE is large asset purchase. However, historically some QE did focused on unconventional assets.

In the US there were 4 rounds of QE (see Fed here, here, here or here) :

QE 1 (circa 2009/early 2010): During this QE Fed purchased a lot of unconventional assets (which is what probably creates confusion in minds of many people about what QE is).

QE 2 (circa 2010/2011): This was in essence just large OMO, Fed mainly focused on buying large amount of treasuries.

QE 3 (circa 2012): Fed went back to purchasing unconventional assets.

QE 4 (circa 2020): Here Fed again changed course and purchased predominantly government securities (although some unconventional assets were part of QE 4 as well).

As you can see from the historic examples above, it does not matter what assets Fed buys. Convention or unconventional or mix of conventional and unconventional - all large asset purchases are known as QE.

Goals also do not matter, the QE 4, which was done to deal with pandemic, had clearly completely different goals from QE 1-3.

This is also just evidence from Fed around the globe different central banks also implemented QE with varying goals and varying assets included in the plans.

Suma sumarum what distinguishes QE and OMO is size. Up to some threshold X asset purchase would be considered OMO and above threshold X it becomes QE. For example, Fed considers asset purchases that can be measured in hundreds of billions dollars QE. Different countries and researchers might have different threshold X (since currency value varies and there might be some disagreements of what is large enough), but again generally its defined in terms of size.

1muflon1
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    @1muffon1. The distinction is in scope, but also in the composition of assets, no? – EB3112 Nov 22 '22 at 23:07
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    @EB3112 not according to the Fed definition. IRL there was a difference, although QE does not happen every day. However, in principle QE could be composed of the same assets as regular OMO, rather it just happen that the time of QE central banks did not believed that would be in line with their vision for monetary policy. – 1muflon1 Nov 23 '22 at 00:57
  • So the Fed bought MBS before QE as well? – AKdemy Nov 23 '22 at 04:12
  • Hi @AKdemy. Yes. Central banks bought a lot of unconventional assets (hence the reason QE is considered 'unconventional monetary policy'). These include (but not exhaustively): MBS, commercial paper, and long-run debt. This departs from standard OMO. – EB3112 Nov 23 '22 at 08:16
  • @AKdemy it didn’t. But we are discussing definition of QE. Definition of QE is just a large asset purchase… I mean that’s black on white. Definition of QE is not purchase of MBS. Any large asset purchase would qualify by definition. Also this is literally Fed definition so what are we even discussing. That’s like you telling biologist, oh yea you claim platypus is mammal? Then why it has fins beak and lay eggs? Yet as strange as it is it fulfills the definition. I literally sourced the definition directly to Fed and it’s a definition, it’s like looking into dictionary – 1muflon1 Nov 23 '22 at 08:30
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    Because by definition it is large asset purchase buying MBS and all that other stuff also qualifies as QE but if tomorrow Fed would start buying gov bonds in billions it would also qualify as QE… I mean that’s how definitions work. Multiple different looking structures will satisfy definition of a house. You saying you saw only yellow houses in past does not mean that definition of house is yellow structure – 1muflon1 Nov 23 '22 at 08:38
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    Hi @1muffon1. I disagree with your definition-focused approach. Yes, of course QE is a large scale OMO, but unlike conventional OMO: QE was perceived and designed to operate through different transmission channels. So, the composition of QE (as a subset of unconventional monetary policy) vs OMO, matters. Therefore, to the OP: I would recommend researching the many transmission channels of monetary policy. This is useful approach in the distinction of conventional OMO vs unconventional OMO (QE). For starters: https://www.frbsf.org/economic-research/wp-content/uploads/sites/4/wp2014-18.pdf – EB3112 Nov 23 '22 at 10:08
  • @EB3112 but that is not correct you are right that QE was unconventional historically, but you can have in theory unconventional OMO as well. The OP asks what QE is, I agree that QE was conducted by purchasing unconventional assets but that’s not what QE is. Again take the house analogy, if you show me picture of very weird looking purple house I will agree it’s a weird looking purple house but when someone asks what house is answer is not it’s a weird purple looking structure – 1muflon1 Nov 23 '22 at 10:30
  • @1muflon1. if you ask me, the OP is asking what these makes these two things distinct, despite equivalent definitions. Therefore, it matters to draw out the operational distinctions (asset types) and the outcome distinctions (transmission mechanisms). I don't think the circularity regarding definitions is informative, regardless of how many analogies you employ. We'll just have to disagree on these matters, unfortunately. – EB3112 Nov 23 '22 at 10:38
  • @EB3112 but definitions are not equivalent since OMO is small asset purchase and QE large asset purchase. This is the actual distinction between the two. You are basically cherry picking single example of QE which had some specific goals. I agree that QE done by Fed in during Great Recession had specific goals but those goals are not part of definition QE. Different OMOs during different periods of time also have varying goals. – 1muflon1 Nov 23 '22 at 10:47
  • Hi @1muflon1. Yes, of course, QE is not a static thing. It is different in the Great Recession from the response to the Truss Budget for example. But a unifying theme is that the QE OMO's focus on unconventional assets, and transmits differently from conventional OMO. This is something a definition-based emphasis misses, so again, we're in disagreement about the strength of definitions. – EB3112 Nov 23 '22 at 14:20
  • @EB3112 right but economics is a science, so when we talk about things its important to have precise demarcation of what is what. Similarly in biology you need to have precise definition of mammal, bird etc. My point is that if tomorrow Fed would announce massive purchase of traditional government securities it would be still called QE it would not be called something else. Indeed in fact QE was not done all at once it had several rounds and some rounds of QE basically focused only on traditional assets. In fact QE 2 in 2010 consisted almost exclusively of gov securities – 1muflon1 Nov 23 '22 at 14:49
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    Again, I disagree. QE2 was long-debt. This makes it unconventional. It therefore makes it different from conventional OMO. In the spirit you seek to uphold, I am the one making the demarcation. – EB3112 Nov 23 '22 at 16:52
  • @EB3112 but Fed was already purchasing long term debt as OMOs from 2013 onwards. https://www.federalreserve.gov/monetarypolicy/bst_openmarketops.htm

    So OMOs can consist of the same assets as QE again the asset class is irrelevant

     – 1muflon1 Nov 24 '22 at 07:22
  • @EB3112 let me ask you final question. Fed literally says difference is just in scope. That’s not my definition that is Feds definition. So according to you Fed is lying on their official webpage and their official documents? – 1muflon1 Nov 24 '22 at 07:23
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    No @1mufflon1. I never said experts at the Fed are lying. I would say you've cherry picked your quote to fit your worldview. Nowhere in that document do the Fed argue that conventional and unconventional monetary policy are the same. the process is the same (they buy and sell things). But the process of me getting punched by my little sister, and the process of me getting punched by Mike Tyson is also the same. The outcomes however, are very different. Therefore, the idea that definition is independent of scale, is unsound. The Fed do not say this in their paper. Scale + composition matters – EB3112 Nov 24 '22 at 08:46
  • @EB3112 but we are not discussing conventional vs unconventional monetary policy. QE can be conventional or unconventional OMO can be conventional or unconventional. Fed does literally say QE is “a large scale purchase of assets”. That is literal quote. Also OMOs according to Fed can consist of unconventional assets. Also rather you are projecting. You created a category where you decided QE=unconventional monetary policy because first QE you experienced what unconventional. Using your analogy that would be like if first punch in your life you ever experienced was from Mike Tison so you think – 1muflon1 Nov 24 '22 at 09:03
  • Punch is defined as being completely destroyed by professional boxer. Also what worldview do I want to fit this in? I am scientist I care about truth. Truth is that QE is not defined as unconventional monetary policy. Unconventional monetary policy is separate category. For example yellow house is two categories color yellow and house - structure people live in. QE is large purchase of assets - if assets purchase are unconventional then QE is also unconventional monetary policy. However, if Fed tomorrow would purchase trillion of short term treasuries it would be QE. Also OP textbook says this – 1muflon1 Nov 24 '22 at 09:04
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    Hi @1mufflon1. I am not in the business of protracted debates online. There is no listening involved in an online debate, and no quarter given. And furthermore, both of our lives are too busy for that. Best to call this one a day. – EB3112 Nov 24 '22 at 09:20