Monetary Policy – Quantitative Easing Quantitative easing is a nontraditional monetary policy that

1100 WordsApr 23, 20195 Pages
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…show more content…
In November 2010, the second stage of quantitative easing announced. The Fed continues to purchase long-term bonds for $600 billions. [1] This action caused the bubble in the US currency. Many of the counties started to own fewer US dollars, and acquired more gold and natural resources. As the results, in 2010, the price of gold and gas were gone up by close to 28%, and the US currency started to depreciate. [1] In September 2012, the Fed announced that they would continue to buy long-term bond at $85 billion per month, but at the same time the Fed would start to sell their short-term bond. [1] By selling short-term bonds, it would lower the long-term market interest rate and decrease the earnings of the long-term bonds. As we can see, the reason Fed continuously used quantitative easing, as monetary policy in recent six years is their goals that have not reached. Even though, the Fed increased rapidly on the monetary base, the multiplier was decreased more than the increasing on the monetary base. As the results, the money supply was still shrinking, and the economy was still in recession. However, in 2013, the Fed announced that they would continue to increase the money supply until the unemployment rate falls below 6.5% or the core inflation rose above 2.5%. [1] By doing this, the Fed continues to increase the inflation rate, and depreciates domestic currency. With higher inflation rate, the real deficit would be dropped.

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