Quantitative Easing
MAF202 Money and Capital Markets – Assignment
Executive Summary
Quantitative easing (QE) is a monetary policy that stimulates economic activeness. QE was first originated in Japan at 2001, afterward, the policy showed its power to influence the economic performance (Kamada &Takagawa, 2005). In 2008, most countries in the world were suffered by Financial Crisis which caused by subprime mortgage. Consequently, the United States and Euro Union implement the first round of QE, in order to recover economic condition.
QE’s function is to increase the liquidity in market, also it can disposal some doubt-debt. At the same time, through these methods, QE can re-establish the credit rating of financial institutions. The result of the last two QEs were quite good, for instance, the unemployment rate in US had decreased. Thus, USA and EU issued the third round of QE, they hope QE3 can further improve economic performance.
Although QE’s performance is positive, but it will also cause some other problems, such as low interest rate and inflation. Therefore, the key point is to balance the financial system.
Task 1
Define Quantitative Easing (QE):
In general, central banks use conventional economic policy, mainly is the adjustment of interest rate to keep the economic stability and to achieve full employment, but when interest rate lower down to close zero. The conventional monetary policies are ineffective. There is only one option for the bank under this circumstance, which is Quantitative Easing (QE), to stimulate the economy’s growth. QE is an unconventional monetary policy and used for expanding the money supply through pumping more money into economy. They do this by purchasing securities, such as government bonds (Mortimer-Lee, 2012). In this case, the Federal Reserve (the Fed) determined to purchase 40 billion of mortgage-backed securities (MBSs) each month and this would not stop until the unemployment rate significantly improved, which is known as the
Executive Summary
Quantitative easing (QE) is a monetary policy that stimulates economic activeness. QE was first originated in Japan at 2001, afterward, the policy showed its power to influence the economic performance (Kamada &Takagawa, 2005). In 2008, most countries in the world were suffered by Financial Crisis which caused by subprime mortgage. Consequently, the United States and Euro Union implement the first round of QE, in order to recover economic condition.
QE’s function is to increase the liquidity in market, also it can disposal some doubt-debt. At the same time, through these methods, QE can re-establish the credit rating of financial institutions. The result of the last two QEs were quite good, for instance, the unemployment rate in US had decreased. Thus, USA and EU issued the third round of QE, they hope QE3 can further improve economic performance.
Although QE’s performance is positive, but it will also cause some other problems, such as low interest rate and inflation. Therefore, the key point is to balance the financial system.
Task 1
Define Quantitative Easing (QE):
In general, central banks use conventional economic policy, mainly is the adjustment of interest rate to keep the economic stability and to achieve full employment, but when interest rate lower down to close zero. The conventional monetary policies are ineffective. There is only one option for the bank under this circumstance, which is Quantitative Easing (QE), to stimulate the economy’s growth. QE is an unconventional monetary policy and used for expanding the money supply through pumping more money into economy. They do this by purchasing securities, such as government bonds (Mortimer-Lee, 2012). In this case, the Federal Reserve (the Fed) determined to purchase 40 billion of mortgage-backed securities (MBSs) each month and this would not stop until the unemployment rate significantly improved, which is known as the