Research On The Theoretical Basis, Impacts And China’s Countermeasures Of The Quantitative Easing Policy In America

Currently, some of the problems associated with the quantitative easing policy is becoming a hot topic. As the policy response of global financial crisis, the Federal Reserve in October2008launched the unconventional quantitative easing policy. Up to now, the Fed implemented a total of four rounds of quantitative easing, the initial objective of the policy is to save the U.S. financial system on the brink of collapse, after that, the goal of this policy gradually includes stimulate the economy, reduce unemployment, etc.. However, the implementation of the Fed’s quantitative easing policy has a major impact not only on the U.S. economy, but also for the majority of emerging market countries, including China.In this case, the research about the theoretical basis and the impact of the Fed’s quantitative easing policy has not only great theoretical significance, but also some practical value.This paper consists of seven chapters. The first chapter is an introduction to the core concepts of this chapter, the research background, purpose and significance, content and methods. By the way, the possible innovation and lack are also included in this chapter.Chapter II is the literature review, this chapter reviews the literature about the quantitative easing policy. This chapter is divided into three parts. The first part is the evolution of the theoretical basis of the quantitative easing policy. The second part is about the transmission mechanism of the quantitative easing policy, after a brief review of the transmission mechanism of the traditional monetary policy, this section focuses on the literature which is about the transmission mechanism of the quantitative easing policy. The third part is the impact of quantitative easing policy, this section focuses on the empirical literature which is about the impact of the quantitative easing policy. In this chapter, by reviewing the existing literature, we has laid a solid foundation for the follow-up study.Chapter III is the dynamic model and analysis of the QE’s theoretical basis. The main objective of this chapter is to build the theoretical foundation of quantitative easing policy. The model of this chapter expands the liquidity shocks model which is built by Kiyotaki and Moore (2003), and the model of this chapter is a complete model which covers the financial sector, liquidity constraints and economic fluctuations, at the same time, the calibration process and the dynamic response of the liquidity shocks show that the liquidity shocks have a strong negative impact on investment, employment and output, so it’s obvious that the liquidity shocks cause fluctuations in the economy. The expanded KM model shows strongly that the liquidity constraints can cause fluctuations in the economy, so it’s necessary to implement unconventional liquidity injection, and the quantitative easing policy has a solid theoretical foundation.Chapter IV is the U.S.quantitative easing policy practice. This chapter describes the U.S. quantitative easing policy implementation process in detail, up to now, the Fed implemented a total of four rounds of quantitative easing, the goal of the quantitative easing policy in the first round is to prevent the spread of the crisis by injecting liquidity into the financial markets,the policy instruments which are used include TSLF and so on. From the second round of quantitative easing policy, the Fed’s policy object changes into reducing unemployment and promoting the continued recovery of the U.S. economy, the policy instruments include purchase of long-term government bonds and so on. Furthermore, this paper compares the United States and Japan’s quantitative easing policy, overall, due to the different structure of the financial system and other reasons, the United States and Japan’s quantitative easing policy is different in policy object, policy tools and other aspects.Chapter V analyzes the impact of the Fed’s quantitative easing policy from different angles. This chapter is divided into four parts, the first part analyzes the domestic impact of the Fed’s quantitative easing policy, the second part analyzes the spillovers of the Fed’s quantitative easing policy in emerging market countries, the third part analyzes the impact of the Fed’s quantitative easing policy on China’s inflation, the fourth part analyzes the impact of the Fed’s quantitative easing policy on China’s output.In the aspect of the domestic impact of the Fed’s quantitative easing policy, Gagon et al.(2010) and Neely (2013) paper confirms the Fed’s quantitative easing policy reduces long-term interest rates in the United States, also, their paper confirms that the Fed’s quantitative easing policy leads to the depreciation of the dollar. This section analyzes the domestic impact of the reduction of long-term interest rates in the United States and the depreciation of the dollar by using the vector autoregression model. The results show that the reduction of long-term interest rates in the United States and the depreciation of the dollar have played a positive role in promoting the output, and further analysis shows that the growth of the output promotes the inflation.In the aspect of the impact of the Fed’s quantitative easing in emerging market countries, the Fed’s quantitative easing policy has a significant impact on the emerging market countries by portfolio rebalancing channel, exchange rate channel, international trade channel and passive monetary policy coordination channel. Furthermore, taking Brazil, Russia and India as examples, we analyzes this impact empirically by using the structural vector autoregression model. The results show that the quantitative easing policy has a significant impact on the exchange rate, output and inflation of the three countries. Particularly, the quantitative easing policy poses a positive impact on the three countries’s inflation, the important reasons are the liquidity flooding and short-term capital inflows which are caused by the quantitative easing policy.In the aspect of the impact of the Fed’s quantitative easing policy on China’s inflation, the Fed’s quantitative easing policy affects China’s inflation through the exchange rate channel and the international commodity price channel. Specifically, the quantitative easing policy promotes the rise of the RMB exchange rate and the international commodity prices, in turn, the rise in international commodity prices pushs up domestic inflation level, the reason is that China’s dependence on the international commodity is very serious, the rise in international commodity prices pushs up production costs,which in turn makes our country faces the inflationary pressures. Meanwhile, the rise of the exchange rate makes positive and then negative impact on inflation, the reason is that the appreciation of the RMB boosts inflation in the short term, after that, the RMB appreciation makes the export fell relatively and the aggregate demand lower than the potential output, the price level then is lower. In addition, in the aspect of the Fed’s quantitative easing policy on China output, the analysis shows that the Fed’s quantitative easing policy has a negative impact on China’s output.Chapter VI is the measures which China takes in order to cope with Fed’s quantitative easing policy, the measures is put up from the angles of real economy and fictitious economy.Chapter VII is the conclusion, on the basis of the previous analysis,this section presents the conclusions of this paper.