The Impact Of Monetary Policy On China Economic After The Financial Crisis

Since the Central Bank has the exclusive right to issue money in the economy, it can have extensive influence on the determination of interest rate in financial markets and in the economy as a whole, by adjusting the interest rate on short-term loans to financial institutions. Central Bank interest rates on these loans therefore have the most immediate impact on other short-term interest rates in the money market. By influencing interest rates, monetary policy then has an effect on the savings and expenditure decisions of individuals and corporate.

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time, including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve, including both the traditional and non-traditional measures to ease credit markets and stimulate the economy.

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve including both the traditional and non-traditional measures to ease credit markers and stimulate the economy.

In this paper, we will be using the log-log model. The log-log model used for the demand for wealth (attuned for inflation). We will be using the M1, as a display, for demand on wealth and interest rate as the illuminating variable affecting the demand for wealth. Using the regression, we will study the hypothesis. For this paper, the hypothesis used will talk about the connection between money and the interest rate. The null hypothesis, in this case, will be the interest affecting the demand for money in the economy. The data that we will be reviewing is from October 2008 to October 2011, 3 years worth of data. This connection will give us the basic understanding of the performance of the monetary policy in US economy after the crisis.

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

-2. The background of the financial crisis.—what kind of monetary policy the federal reserve made?

This paper presents the effects of expansionary monetary policy to macro economic variables in the economy. The United States of America recorded a mortgage crisis since 2007. The financial sector issued out massive amounts of money to individuals to acquire homes. This was in line with government campaigns for equitable housing of US citizens in the United States. This led to an increase in loans offered to citizens to purchase homes, leading to an expansionary monetary policy. Though this strategy brought equity in home ownership, it also brought financial imbalance in the

The Federal Reserve went into action in response to the 2008 recession by rapidly reducing interest rates with the hopes of encouraging economic growth. The federal funds target rate was decreased to between zero and .25 percent. The results of the rate changes caused what is called “zero bound”, this reduced the effectiveness of monetary policy with the near non-existence of interest rates.

Taking into consideration the adverse impact of the 2008-2009 financial crisis we have examined main governmental policies used to prevent future economic fluctuations and its instruments for reducing crisis ramifications. Although methods are numerous, most of them proved their deficiency and ineffectiveness. In particular, traditional monetary policy cannot be a sufficient incentive for economic recovery anymore. Unconventional monetary policy, in its turn, is a two-edged tool with unpredictable after-effects. The third branch called macroprudential approach has the most favorable prospects in the future as it ensures the policy is consistent and draws attention to the microeconomic level.

Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic

In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary

Since the financial tsunami and the bankruptcy of Lehman’s Brother in September 2008, the world’s economy took a deep plunge and the Chinese economy is no exception. In the wake of the global financial crisis, The Economist (2008) reported that China’s real GDP growth slowed to 9 percent in the third quarter of 2008 and export growth slowed to 21.1%. It was, in fact, well below analyst expectations and recent

These conclusions correspond to the claim of the quantitative theory that money is the primary determinant of nominal income. If thus the rate of money circulation does not change (here the rate need not necessarily by a constant ), then money exclusively determines changes in the price level and nominal income, so monetary policy can, through regulating the development of the individual money aggregates (M1, M2, etc.), influence macroeconomic variables and predict their development.

Secondly, the fixed dollar-pegged exchange rate system and monetary policy, the independence of the existence of a fundamental conflict, undermine the effectiveness of monetary policy cannot meet the needs of economic development. Monetary policy autonomy is essential for China’s macroeconomic stability; monetary policy should take precedence over the independence of significant exchange rate stability. But the Yuan against the U.S. dollar exchange