A critical review of quantitative easing and its impact on the UK economy
Research proposal -
“A critical review of Quantitative easing and its impact on the UK’s economy”
Research background (Theory, concepts, Key issues, problems and researchable questions) -
Theory- During the recession flow of the money in the market is very less, hence central bank lend the money to the borrowers at low interest rates, but there is limitation they cannot go beyond zero percentage, hence central bank do “Quantitative Easing” that is printing of money and boost the money into market by purchasing the assets and buying the gilts or government debts.
Concepts- the main concept behind the Quantitative easing is to boost the money into the market and keeping maximum inflation rate targeted 2 pc by BOE with relative growth in GDP and stop quantitative easing when inflation reaches the maximum limit and withdraws the money from the market by selling the assets and gilts.
Key issues and problems-
The main issue is UK Economy is not recovering even after boosting 200 billion pounds with the interest rate 0.5%, inflation also noticed about 3.1% and GDP under contraction of -5.2% in year July 2009.the question is whether monetary policy of BOE is correct?
The problem is government is planning to put more 25 billion to 50 billion in 2010 and inflation rate increases if printing more money and pound loses its value against dollars and Euros . When the QE will end? Will the bank losses if QE stops?
In this secondary research report I am going to find out why UK economic is not recovering, what are the factors hold the growth, what are the government next steps in QE or any other alternative solution to QE, how much time it will take to recover and when it will end. This will give me depth knowledge about QE and future planning of BOE on UK economy.
I will use conclusive descriptive research method to ensure my research objectives.
1. What is effect of QE on inflation and deflation?
2. Does inflation and printing of money affects the value of currency or exchange rates?
3. Is printing of money reliable?
4. Will quantitative easing work in UK?
5. Is UK economy recovering by QE?
6. What are the alternative ways to improve UK economy?
7. Is monetary policy of BOE is effective?
8. When QE ends in UK?
9. Will banks in losses when QE ends?
According to the special reports by actionforest.com published in their websites on March 08, 2009. Bank of England has announced quantitative easing in order to overcome the recession and improve the UK economy.BOE has decided to put 150 billion pound into the market through quantitative easing i.e. printing of money. They have decided to buy assets of 50 billion pounds, commercial bond & gilts of 75 billion pounds. They have cut down the interest rate almost to 0.5pc and targeted to keep the inflation rate 2pc. Authors has research on the impact of quantitative easing on the inflation and growth i.e. GDP rate. As per the research it has been seen that increase in money supply and reduction in the interest rate to 0.5pc inflations increases and the value of pound goes down against the dollars and Euros. The author has used quantitative conclusive research method.
“The fear of printing too much money” article written by Chris bowl of BBC radio current affairs, published on 5th march, 2009. Mr. Darling chancellor of UK said that “emergency money printing conjures the most disturbing of ancient and modern anxieties - of politicians ruining a currency, and there by utterly undermining a society's stability.”(Chris bowl, 2009). As per Mr. Darling now days nobody prints money it is just done electronically. Fear factor of Printing of money is the inflation and value of currency goes down. The great example is the Zimbabwe who has printed the money without...
References: 1. Action forest, 2009, [online], available on URL: http://www.actionforex.com/action-insight/special-reports/uk:-impact-of-quantitative-easing-to-growth,-inflation-and-sterling-2009030881161/, [accessed on 10th November, 2009].
2. Bowl, C. 2009, “The fear of printing too much money”,[online], available on URL: http://news.bbc.co.uk/1/hi/business/7925981.stm ,[accessed on 10th of November,2009].
3. Lynn, M. 2009, “four ways to pull an economy out of the recession”, [online], available on URL: http://www.arabianbusiness.com/573795-four-ways-to-pull-an-economy-out-of-recession, [accessed on 29th November, 2009].
4. Giles, C. 2009, “To be continued QE or not to be continued QE”,[online], available on URL: http://blogs.ft.com/money-supply/2009/11/04/to-continue-qe-or-not-to-continue-qe/, [accessed on 15th November, 2009].
5. Warner, J. 2009, “Worried about the lack of growth not more quantitative easing, [online], available on URL: http://www.telegraph.co.uk/finance/comment/jeremy-warner/6488781/Worry-about-lack-of-growth-not-more-quantitative-easing.html, [accessed on date 12 November, 2009].
6. Owen F., Shenk M. 2009, URL: http://www.clevelandfed.org/research/trends/2008/1208/01intmar.cfm, [accessed on 15th November, 2009].
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