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How Government Actions Improves Market Outcomes - Assignment Example

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In the paper “How Government Actions Improves Market Outcomes” the author analyzes the actions taken by the Chinese government in the wake of economic turmoil across major economies of the world. One of the actions taken by the Chinese government entails devaluation of its currency against the dollar…
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How Government Actions Improves Market Outcomes
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Download file to see previous pages Such measures included quantitative easing characterized by debt-for-bond swap plan with an objective of keeping domestic markets afloat, among others. Notably though was an increase in margin financing of stock purchases that fuelled an extraordinary increase in equity prices. Following stabilization of equity prices, the government embarked on contractionary measures aimed at ceasing government direct intervention so that the market may adjust to internal market forces, and eventually sustain itself.
As pointed out by Frankel, while it appears that the apparent market failure resulted from misguided government intervention in the market, the cause may as well be the unpremeditated plans and subsequently implementation by the China Securities Regulatory Commission to limit the amount that brokerages could put into stock trading. The resulting increase in margin requirements gave rise to a state where economic instruments grew weaker, resulting in the resent crush of the Chinese stock market.
The measures undertaken by the Chinese government, even though they seem to have been catastrophic rather than beneficial, were in no way intended to compromise or to further cripple the economy. Measures such as quantitative easing have been proven quite pragmatic in resuscitating downward spiraling economies around the world. However, currency devaluation superficially appears to provide relief to currencies whenever implemented, boosting their respective performance internationally. ...Download file to see next pagesRead More
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