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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
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Quantitative Easing Name Course Professor Date Quantitative Easing Introduction; Quantitative easing is an unusual financial tool used by central banks to arouse the economy. This is when there is a depression or the nation is limping along. The central bank set aside will decrease short-term interest rates in order to stimulate lending and expenditure.
The US economy floods the market with money as a measure to overcome the impacts of the 2000 global financial crisis and subsequent bank collapses. From the viewpoint of Kollewe (2009), it is identified that this monetary policy does not really benefit the Fed even though this approach may bring notable achievements in the short term.
This is facilitated by the private sector and banks by means of electronic money. The liquidity and funding in the money market increases by a growth in the money supply due to a rise in capital in banks and other financial institutions (Wieland, 2009). Quantitative easing is divided into expansionary and contractionary policies as well.
The financial crisis has made the economy face several challenges and the Bank plans to overcome those challenges by using the quantitative ease methods to ensure free flow of the money (Ahmad, 2010). Same has hit the Bank of England as the increasing financial crisis has resulted in the increase of inflation.
In most of the times when a country suffers from inflation the central bank of that country takes several steps to stop severe inflation and tries to minimise the prices of the goods and services (Hudson, 1982, p.67). The central bank of United Kingdom is known as “The Bank of England”.
Most governments feel that asset purchases provide additional stimulus to nominal spending and this is the important aspect in reducing the level of inflation in a country. While this may be true, economist is still skeptical on the effects of such a move on asset prices, the expectation of the public and the availability of credit for a stable economy.
The purchase is made from banks and private sector businesses by means of new money that has been created electronically. This is different from the traditional buying and selling of government bonds to keep the
The monetary finance is a policy set in place to see the supply of money in the market does not exceed its demand (Senn, 1999). This is only achievable through setting of interest charges on loans offered. When you increase the charges at which loans are offered,