Dissertation > Economic > Fiscal, monetary > Currency

Analysis on the Practice and Effects of the Quantitative Easing Monetary Policy in America

Author ZhaoHuiChao
Tutor DengLiLi
School Dongbei University of Finance
Course International Trade
Keywords quantitative easing monetary policy FED effect influence
CLC F827.12
Type Master's thesis
Year 2011
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In 2007, the US sub-prime crisis severely damaged the financial system, caused a serious shortage of liquidity on the market and induced the global financial crisis. The major countries, such as The United States, Britain, Japan, tried to increase the liquidity by reducing the interest rates near zero, but the result was not effective. In this case, the US first implemented the quantitative easing monetary policy and also led the other major countries into the monetary policy.As the sub-prime crisis is the root of the global financial crisis and the economic environment of the US is serious disrupted by the crisis, the implementation of the quantitative easing monetary policy in the US is more powerful than the other countries, and also America has the most innovative monetary policy tools in the world. To analyze the implementation process and the effects of the quantitative easing monetary policy will help us to deepen understanding of the policy and aware the function of it. By researching the impact of the policy on the US economy, we could find out the trend of the world economy development, the limitations and the potential negative impacts of the policy, and prepare to respond to the changes in the international economic situation.This paper mainly analyzes the practice and effects of the quantitative easing monetary policy in the US based on the economic theory and the study of economic data. First, the concept and theory of quantitative easing will be introduced, as well as the policy operation and transmit mechanism. The differences between quantitative easing monetary policy and the traditional monetary policy will be analyzed in this section, in order to understand the policy better. Second, according to the theory of the quantitative easing and the practice of QE1 and QE2 in America, the reasons of implementing the quantitative easing policy will be explained, including the economic factors and political factors. In the light of the different steps of the crisis, the implementation process of QE could be divided into several stages and the innovative monetary policy tools will be showed in the end of this section. Third, an assessment of effects of QE will be taken objectively with the actual changes in the domestic economy data, such as the alteration of the GDP and unemployment rate. Fourth, the positive impact and the negative influences of the quantitative easing policy on American economic environment and the world financial system will be summarized. Finally, the paper will discuss what China should do after the global crisis, according to the influences of the quantitative easing policy.According to the analysis on the practice and effects of the quantitative easing monetary policy, this paper draws conclusion as follows. First, the quantitative easing policy could not implement in long-term, compared with the traditional monetary policy which focus on the sustainable economic development and always implement in a long time in the stable economic environment. Second, the operation of the quantitative easing policy is affected by many factors, such as the economic development of the country before the break of crisis, but the basic operation mechanism has not been changed. The central bank injects liquidity to the market by purchasing bonds and commercial papers, in order to promote economic recovery. Third, the quantitative easing policy is ineffective on the adjustment of unemployment rate and financial deficit. Although the implementation of the quantitative easing policy could increase the liquidity in the market, the injection of liquidity uplifts the expectation of future inflation. The more the liquidity has been injected, the higher the expectation of inflation will go. At last, the US will not quit quantitative easing policy, because the recovery of economy has not completed. There are still many issues which should be solved by the US government and the other major counties. Further research should be taken on the exit of the quantitative easing policy.

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