Quantitative Easing Paper

6543 Words Dec 9th, 2012 27 Pages
Nov.06.2012
Ruixuan Ding
Corporate Finance
Quantitative Easing Paper
Introduction
United States confronted serious disorder in financial markets and steep declines in overall economic (Williams 2011) after 2007 financial crisis. The financial crisis in 2007 and its subsequent negative effects greatly challenge the conventional understanding of recession and available monetary policies to handle it. The US and global monetary authorities have been criticized for the excessively expansionary monetary strategies in last decade. (Giraud 2012). In this prospective, the monetary policy after the 2001 recession remained “too lax for too long and this triggered asset-price inflation” (Giraud 2012), not only in US housing but also in
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This situation is called “liquidity trap” and happens while there is a deflation or really low inflation. (Giraud 2010) Then central banks ask the Quantitative Easing for help by buying a pre-determined amount of government bond and assets from private institutions. The purpose of this unconventional strategy is to inject money into the economy directly to boost growth rather though reduced interest rate, which already cannot be any lower. (Plosser 2009)

The definition for Quantitative Easing differed in different countries. And the Fed, BoJ and BoE even use totally distinguished terms to name the Quantitative Easing, which indicates various unconventional measures in the scope of financial assets purchasing. The Fed using “Credit Easing” to put a great concentration on private asserts purchasing and asset side of bank balance sheet. (Bernanke 2009) In contrary, BoJ from 2001 to 2006 concentrated on the liability side of balance sheets, focus on the current target for account balance. (Shiratsuka 2010) And England’s Monetary Committee began a programme of large assets purchases, which actually referred to Quantitative Easing. (Joyce, Lasaosa, Stevens, Tong 2010) The difference rooted in the scope of Quantitative Easing are not only an aftermath of different purposes, but also due to the various financial circumstances and regulations, several
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