Economic Impact to China After Qe3
On September 13, 2012, the Federal Reserve announced another round of quantitative easing (QE). Discuss the expected economic impacts of “QE3” on selected East Asian Country.
On September 2012, the Federal Reserve announced a new round of open-ended quantitative easing named QE3. Unlike the previous quantitative easing, the Fed decided to continue buying mortgage-backed securities until the economy is improved, rather than creating another fixed endpoint package. The first quantitative easing was introduced by Fed in November 2008 in order to create credit in the private market to help revitalize the mortgage lending and support housing market as well as lower down interest rate in general. Therefore, Fed purchased a total of $1.75 trillion in mortgage-backed security, federal agency debt and long-term treasuries. In November 2010, Fed implemented the second round of quantitative easing by purchasing up to $600 billion long term treasuries bills intend to lower overall interest rate to spur consumer spending and business investment (Federal Reserve Bank of St. Louis, 2011).
The third round of quantitative easing is introduced to seek economic development and reduce the high unemployment rate from 7.9% to less than 7.0% in the US economy. Hence, Fed decided to continuously purchase $40 million of mortgage-based security per month and maintain a zero-interest rate policy up to mid-2015 until the labor market shows improvement. Implementation of QE3 in the US economy will have severe impacts on a few aspects in the China economy. First of all, QE3 execution in US economy will create a huge money supply in the economy and also will create a vast flow of hot money throughout the Chinese economy. Besides, China’s inflation rate will also be affected as well as the China’s currency, Yuan.
Third round of quantitative easing by US Federal Reserve will be expected to create a global flow of hot money from developed countries to the emerging markets. According to the
On September 2012, the Federal Reserve announced a new round of open-ended quantitative easing named QE3. Unlike the previous quantitative easing, the Fed decided to continue buying mortgage-backed securities until the economy is improved, rather than creating another fixed endpoint package. The first quantitative easing was introduced by Fed in November 2008 in order to create credit in the private market to help revitalize the mortgage lending and support housing market as well as lower down interest rate in general. Therefore, Fed purchased a total of $1.75 trillion in mortgage-backed security, federal agency debt and long-term treasuries. In November 2010, Fed implemented the second round of quantitative easing by purchasing up to $600 billion long term treasuries bills intend to lower overall interest rate to spur consumer spending and business investment (Federal Reserve Bank of St. Louis, 2011).
The third round of quantitative easing is introduced to seek economic development and reduce the high unemployment rate from 7.9% to less than 7.0% in the US economy. Hence, Fed decided to continuously purchase $40 million of mortgage-based security per month and maintain a zero-interest rate policy up to mid-2015 until the labor market shows improvement. Implementation of QE3 in the US economy will have severe impacts on a few aspects in the China economy. First of all, QE3 execution in US economy will create a huge money supply in the economy and also will create a vast flow of hot money throughout the Chinese economy. Besides, China’s inflation rate will also be affected as well as the China’s currency, Yuan.
Third round of quantitative easing by US Federal Reserve will be expected to create a global flow of hot money from developed countries to the emerging markets. According to the