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Spillover USA quantitative easing monetary policy research - impact on developing countries and Countermeasures to Chinese as an example

Author CaoZuo
Tutor YuanZhiGang
School Yunnan University of Finance
Keywords quantitative easing spillover Mundell-Fleming Mode
Type Master's thesis
Year 2013
Downloads 22
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The U.S. quantitative easing policy and its spillover is a major issue in today’sworld economy, which has an enormous impact on China’s economy, and it’s difficultfor China to seek advantages and avoid disadvantages. This paper explains how theU.S. quantitative easing policy influence the other countries by using theMundell-Fleming Mode, and then the influences summarize in a few points based onthe history and reality. At last, there are some policy recommendations to the adverseeffects of the U.S. quantitative easing policy.Firstly, this paper studies the quantitative easing policy in Japan and recalls theprocess of the U.S. quantitative easing, reach a conclusion that the essence of the U.S.quantitative easing policy is monetary easing policy. The introduction of the U.S.quantitative easing policy is because the traditional monetary policy is ineffective.Secondly, this paper studies the U.S. quantitative easing and its spillover. To definesthe spillover and the spillover of the U.S. quantitative easing policy monetary policy.And this paper believes that the fundamental reason results in the spillover of U.S.quantitative easing policy is the integration of the global economy, which also is theMundell-Fleming Model’s open economy condition. Thirdly, the paper explains thetransmission mechanism of the spillover of the U.S. quantitative easing policy byusing the Mundell-Fleming model. This paper believes that the spillover results fromthree ways, the interest rate channel, the exchange rate channel and the commoditychannel.This paper also studied the impact of the spillover of the U.S. quantitative easingpolicy on China, which can be divided into two parts, beneficial effects and adverseeffects. History is always surprisingly similar. The U.S. quantitative easing is a formof monetary easing policy, so the adverse effects of U.S. monetary easing work on thedeveloping countries in the past, China can serve as a reference today. This paperargues that beneficial effects, including indirect making China’s foreign exchange reserves increase rapidly, improving the China’s influence of international economicaffairs, providing the China with cheap money. Adverse effects including a great riskin the outflow of capital in the future, cause the China’s foreign exchange reserveslosses, impact on the China’s monetary policy, imported inflation, the appreciation ofRMB rapidly, boosting the China’s asset bubbles and leading to debt problem.Finally, basing on the adverse effects of the U.S. quantitative easing, this paperalso offers the corresponding countermeasures. Including the government needs torelax the foreign investment restrictions as soon as possible, forming a stableexpectation in real estate prices to the public, building the international capital flowmonitoring mechanism, accelerating China’s structural adjustment, expanding thedomestic demand, imposing environment and resource tax strictly, paying an attentionon the foreign borrowing of the Enterprises.

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