Topics: Monetary policy, Central bank, Money supply Pages: 3 (1118 words) Published: April 4, 2013
The summary of Crazy Aunt on the Loose
-January 24rh 25th, Fed officer announced that they will increase short term interest rate, which is at near zero. -Four major central banks, Britain’s and Japan’s already have the interest rate at near zero and the European Central Bank (ECB)’s interest rate is going to stuck near zero. During that time, the balance sheets of all four institutions have expended as they increasing the volume and range of assets and loans. -Mr. Blinder, a Princeton economist and former Fed officer, insisted that the monetary policy and fiscal policy have no longer effect because of large debt make the central bank to operate unconventional policy such as quantitative easing (QE). -Japan has operated unconventional policy to prevent a deeper recession but not deflation or stagnant employment since 1999. Western countries will require more unconventional policy in 2012 because Fed official and the Bank of England (BoE) predict the growth of the economy is gloomier as recession in Europe, hence, the bank is likely soon to resume QE. -The BoE has done QE by purchasing government debt, living it to the treasury to increase credit to the private sector. The fed operates QE by purchasing mortgage bonds as treasuries did, but do not purchase private assets. The ECB has a different position to the Fed. ECB restricted its ability to fund governments but give a liberty to buy private debt.

1.Difference between Quantitative Easing (QE) and the normal operation of monetary policy The normal operation of monetary policy is change in the base rate of interest to control the prompting of aggregate demand, the money supply and price inflation in the market (Fujiwara, 2004). It means the normal monetary policy controls money supply by changing in the interest rates in the market. Changes in short term interest rate would have an impact on the spending and saving behavior of householder and businesses. Quantitative easing is an abnormal monetary...
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