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The Spillover Effect of US Quantitative Easing Monetary Policy to Chinese Economy

Author HeFeiFei
Tutor LiSuoYun
School Shanxi University of Finance
Course Finance
Keywords Quantitative easing monetary policy spillover effect
Type Master's thesis
Year 2014
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In recent years, as a reserve currency issuing country, the United States continuouslyused the quantitative easing monetary policy. Such a move caused great sensation in theglobal economy. The reason is that,in the environment of economic globalization,themonetary policy of United States can not only regulate domestic economic situation, butalso can affect peripheral countries, particularly the emerging economies. The fed’squantitative easing monetary policy caused great influence to our country. China’sforeign exchange scale drastically grew slowly. Commodity prices rose, Inflationpressure improved. The sovereign debt crisis is one of the biggest problems that thecurrent global economic facing. The impact of quantitative easing monetary policy isnot very clear, which put forward higher requirements for the emerging economieswhen they make monetary policies. Thus,making researches on the spillover effect ofthe quantitative easing monetary policy is of great significance in monetary field,Quantitative easing (QE) is a kind of unconventional monetary policy tools. It canonly be used when the conventional monetary policy doesn’t make sense. Atfer thesubprime crisis, the fed continuously launched a round of quantitative easing monetarypolicy. Although the purposes of the four monetary policies are a bit different each time,their core essence is the same. The America printed a large number of US dollars andbought long-term Treasury bonds to increase money supply and reduce the pressure onbanks and other financial institutions. In the short term, the quantitative easing policycan effectively solve the shortage of liquidity, improve market expectations andalleviate the impact of the crisis,but as the rounds of implementation, quantitativeeasing showed significant negative spillover effects.The spillover effects of quantitative easing can be divided into positive and negativesides. The positive effects of quantitative easing monetary policy mainly includemaintaining short-term financial stability,stimulating the increase of international tradeand accelerating industrial structure adjustment. The negative effects of quantitativeeasing monetary policy mainly include causing excess liquidity,reducing othercountries’ exports, pushing commodity prices, shrinking foreign exchange reserves andincreasing the risk of inflation.In recent two years, American domestic economy grew. The fed began brewing outquantitative easing. We should be wary about brewing out quantitative easing. It cannotbe too early or too late. If the fed exits the quantitative easing too early,it could notreach the desired effect. If the fed exits the quantitative easing too late,it would bring anew crisis. Exiting quantitative easing monetary policy needs a gentle and gradualprocess. It can’t happen ovenright. The government should grasp the exit time properly.The exit of the quantitative easing will slow down the process of RMBinternationalization and increase the pressure of economic growth, but,in general,theexit of quantitative easing has a small negative impact on our country. The exit ofquantitative easing is a good opportunity to our country. It can promote export, reduceproduction cost and reduce the pressure of imported inflation. In the near future, theworld will remain relaxing economy environment.In this paper, the writer starts from the theory of quantitative easing monetary policy,analyses the difference between the quantitative easing and conventional monetarypolicy, and then focuses on the spillover effects of quantitative easing to our country,.At the end of the paper, the writer puts forward feasible measures and summarizes therevelations of the quantitative easing monetary policy to our country.

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