Quantitative Easing Essay

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Monetary Policy – Quantitative Easing

Quantitative easing is a nontraditional monetary policy that the central bank used when the economy is in recession. The first country used quantitative easing, as monetary policy is Japan in 2001. It is getting well known when the United States of America adopted quantitative easing policy to boost its economy from the economic crisis that happened in 2008. In general, quantitative easing means that the central bank will print more money to buy long-term bonds from commercial banks or private sectors to increase the money supply in the financial market. By inputting more money to buy long-term bonds, it will lower the long-term market interest rate and increase the market price of the long-term bonds, which will lead to lower the earnings from long-term bonds. At low interest rates, it promotes people to consume more and borrow more money from the financial institution. As a result, it stimulates the economy and slowly recovers from the financial crisis. In this paper, it will talk about the three stages of quantitative easing policy in the US from 2008 to 2013, the effect of quantitative easing to the US and the world and the consequence of quantitative easing in the US market.

Starting from 2008 to 2013, the Fed started to use quantitative easing to boost the US economy from the economic crisis. In November 2008, the first stage of quantitative easing was initiated. The Fed had purchased $1.7 trillion dollars worth bonds and securities from commercial banks and private institutions. [1] It means that the Fed had increased the monetary base by $1.7 trillion dollars. The effect of the fist stage of quantitative easing would be significant, because by putting $1.7 trillion dollars into ...

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...cy. Currently, the US only takes six or seven years to recover the economy from the recession. On the other hand, one of the cons about quantitative easing would be high inflation during the quantitative easing period. There are many debates about the pros and cons of quantitative easing over periods. I think quantitative easing is an effective method for the central bank to use when the economy is in recession or depression.

Reference:

1. Ross Heard. 2013. QE: a timeline of quantitative easing in the US. Open Economy. Retrieved from http://www.opendemocracy.net/openeconomy/ross-heard/qe-timeline-of-quatitative-easing-in-us

2. Lan Katz. Jan 15, 2014. China’s Treasury Holdings Climb to Record in Government Data. Bloomberg. Retrieved from http://www.bloomberg.com/news/2014-01-15/china-s-treasury-holdings-rose-to-record-in-november-data-show.html

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