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Quantitative Easing - Essay Example

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Stimulating the economy of a country requires unconventional measures that involve monetary policies such as quantitative easing. …
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Download file to see previous pages Quantitative easing has policies that when well implemented can result to reduction of systematic risks and improve market confidence. Consequently, it can contribute to higher inflation than desired in case policy makers overestimate the amount of easing required (Gibbons, 2011:224). This essay will seek to explain the extent in which the practice of quantitative easing threatens the independence of policymakers. Quantitative easing is another bank bailout. Money created in form of promissory notes or bonds and is available to only those banks that have received the quantitative easing (Biefang-FrisanchoMariscal, and Howells, 2011:98). When the rate of interests is high, there is an alternative method of influencing the price of money circulating in the economy. This alternate solution is quantitative easing whose aim is to lower the rates of interests affecting companies and households where the central bank takes the most important step, QE, by generating new money for use in an economy. Therefore, quantitative easing, dubbed printing money, assumes the definition of unconventional monetary policy acquired by the central banks in view of stimulating the economy at times when the conventional monetary policy fails. ...
2012). These unconventional measures had principle element in the United Kingdom whereby, their policy was to purchase assets with finances from the central bank, in short, quantitative easing (Howells and Hussein, 1997:378). Between March 2009 and January 2010, there were more than 200 billion Euros purchases of assets. Overwhelmingly, this amount comprised of government securities that ended up representing 14 percent of the annual Gross Domestic Product (Howells, 2010:314). The motivation and implementation of these central banks’ asset purchase had significant economical impacts and according to the Bank of England, quantitative easing made considerable uncertainty regarding magnitudes of the UK’s financial market (Douglas, 2011). Recently, the growth of broad money slowed dramatically within the economy of the United Kingdom since when recession commenced. Indicators of the recession were in part things like reduced borrowing by households and companies. Presumably, the Bank of England had to practice quantitative easing on behalf of Monetary Policy Committee in order to offset the UK’s economy from this weakness (Joyce, 2010). This practice boosted huge sums of money holdings into the economy. However, it threatened the independence of the policymakers since there is documented evidence from the monetary data depicted that the asset purchase program led to an increase in prices of assets (Biefang-FrisanchoMariscal, and Howells 2011:102). In addition, it ultimately contributed to increase in nominal demand in the UK’s economy making other evidence from other financial markets corroborative (Ellis, 2009:31). In 2009, the Monetary Policy Committee made a stern decision of making the economy of the United Kingdom an elaborate market with ...Download file to see next pagesRead More
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