The unconventional monetary policies implemented by the Bank of England, U.S. Federal Reserve and the European Central Bank in response to the financial crisis The signification of the financial crisis followed the collapse of Lehman Brothers in September 2008 caused the decrease in the market activity and the growth of globalization economy. A vast of problems, such as deflation, reduction in capital liquidity and so forth, confront with each government and central bank as well as having significant negative effect on development of economy that lowering of GDP. After the financial crisis erupting and spreading to all around the world’s financial condition, some measures for example, lowering of interest rate and keeping the reserve requirement lowing, implemented by central banks aimed at stabilize market price and funds liquidity to support aggregate demand. However, actually, the central banks’ interest rate is very low in United Kingdom, European system and United Stated, which is closing to zero bound, so that it is difficult for central banks to maintain financial condition and support a further stimulation via tool of interest rate (Benford et al, 2009). Meanwhile, commercial banks reduced the aggregate of bank loans in order to remain sufficient reserve and prevent their value of assets, because not enough money expand their investment to profit with high risk investing environment. Therefore, Bank of England, European Central Bank and U.S. Federal Reserve generate a series of non-standard monetary policies called unconventional monetary policies to avoid the threat of a liquidity trap (Loisel and Mesonnier, 2009). This essay will discuss what unconventional monetary policies implemented by Bank of England, European... ... middle of paper ... ...8, 2009. 5. Curdia. V, and M. Woodford, 2010. Conventional and Unconventional Monetary Policy. Federal Reserve Bank of St. Louis Review, 92 (4), pp.229-264. 6. European Central Bank, 2010. The ECB’s Response to The Financial Crisis. ECB Monthly Bulletin. 7. Fleming, Michael J, W. B, Hrung, and F. M, Keane, 2010. Repo Market Effects of the TSLF. American Economic Review, 100 (2), pp.591-596. 8. Joyce. Michael. A. S, A. Lasaosa, I. Stevens, and M. Tong, 2011. The Financial Market Impact of Quantitative Easing in the United Kingdom. International Journal of Central Banking, 7 (3), pp.113-161. 9. Loisel. O, and J. S, Mesonnier, 2009. Unconventional Monetary Policy Measures In Response to the Crisis. Banque of France, NO.1, pp. 1-13. 10. Meier. A, 2009. Panacea, Curse, or Nonevent? Unconventional Monetary Policy in the United Kingdom. International Monetary Fund .
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The seventh chapter asks, ‘Why Do Central Bankers Have Power over the Economy?’. In this chapter, the authors evaluate the power of central banks during normal and tough times and question whether central banks ‘have the power to control something as huge as the macroeonomy’ (p.74).
Before we begin our investigation, it is imperative that we understand the historical role of the central bank in the United States. Examining the traditional motives of this institution over time will help the reader observe a direct correlation between it and its ability to manipulate an economy. To start, I will examine one of its central policies...
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
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When an economy is in a recession the government has to act differently in order to increase demand and help businesses survive. The money supply method of the monetary policy is a good idea in theory but because of the current economic crisis, banks don’t feel secure enough to lend out there money as the return isn’t guaranteed.
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