Quantitative Easing Should Not Be A Measure Of Last Resort Essay

982 WordsApr 19, 20164 Pages
Quantitative Easing “Quantitative easing” refers to an unorthodox monetary policy where a central bank would buy bonds and premiums to stimulate the economy when the nominal interest rates are near or at zero. Since nominal interest rates cannot technically go below zero, this is done by pumping liquidity into the economy so that asset prices would inflate. This technique had originated in the Bank of Japan (BOJ) during the early 2000s as an attempt to revive Japan’s stagnant economy. The United States Federal Reserve had implemented several plans similar to that of the BOJ after the 2008 financial crises, and continued until late 2014. Quantitative easing should not be put into effect again because it has not significantly affected the economy positively in the first place, it also risks hyperinflation, and if anything, it should be used only as a measure of last resort. First, quantitative easing should not be implemented again because after numerous studies done, the policy had shown little positive difference in its overall long-term effect. Although there have been some measurable effect (even in the Fed’s announcement of these programs ) and some positive progress unequally distributed in some areas (these will be discussed later), quantitative easing has not had a positive effect on equity prices, on the money supply, nor on interest rates. Studies done by James L. Olsen of the Journal of Financial Planning find that both QE1 and QE2, which were the Fed’s first two

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