A Study On Quantitative Easing Monetary Policy

Financial crisis caused by U.S. subprime crisis poses a huge threat to the global banking, financial markets and financial stability. At the same time, it also has a serious negative impact on economic development of countries in the world, leading to the global economic recession. In order to prevent the spread of the crisis and global economic recession, the world's leading economies included U.S. almost carry out quantitative easing monetary policy coordinatedly. This dissertation analyzes the quantitative easing monetary policy deeply, and summarizes the previous quantitative easing monetary policy in Japan's case studies to reveal the principles and effects of policies and the impact on the economy. In the meanwhile, this dissertation analyzes the appropriate timing of their exit.The earliest use of quantitative easing monetary policy occurred in Japan's recession in 2001 due to liquidity trap condition of the economy, the willingness to invest and demand of the entire economy are very low, while the role of traditional monetary policy is extremely limited, so quantitative easing monetary policy came into being. Keynesian liquidity trap theory shows that the traditional monetary policy is invalid in this case, because the increase in money supply failed to decrease the interest rate and stimulate the effective demand. Thus quantitative easing monetary policy regards financial market stability as the goal, expand the size of the central bank balance sheet directly to provide liquidity and prevent the crisis from spreading. Based on the analysis on quantitative easing between 2001 and 2006 in Japan, the dissertation finds that Japan has taken quantitative easing monetary policy when economy gets into a liquidity trap, and its effectiveness is limited, while the increase in base money can not effectively increase credit.This dissertation analyzes the content analysis of the quantitative easing monetary policy operations in the United States, the Europe and Japan, shows that the operations are composed primarily by reducing the level of interest rates close to zero and keeping it until price level returns to normal levels, and providing liquidity to financial markets and financial institutions by a large number of innovative tools, and then purchasing a large number of government bonds to increase market liquidity. This dissertation makes interpretation of the effects of the policy content in the United States, the Europe and Japan to find that quantitative easing monetary policy has a positive effect in terms of liquidity, but has a limited role on the amount of credit, and also creates some risk of inflation.This dissertation focuses on quantitative analysis on the effects of implementation of China's loose monetary policy and empirical analysis on the China's transmission mechanism, which shows that the interest rate and deposit reserve ratio can control the money supply effectively and China's loose monetary policy can decrease the effect of international financial crisis and avoid the further recession of economy.When quantitative easing monetary policy works effectively and achieved some positive results, the exit mechanism is particularly important, because premature exit will lose the existing results of the economic recovery achieved, but the late withdrawal will bring economic pressure on inflation to destroy sustained and stable economic recovery. The existing numbers of countries start the exit step, this dissertation gives some suggestion on exit timing and way, and then points out the exit should consider the pressure on inflation, the increase of demand, fiscal deficit and the unemployment.This dissertation concludes as follow: Firstly, quantitative easing monetary policy considers financial stability as the goal, concerns about the multi-dimensional economic variables, and has the rationale policy transmission path such as a weak balance sheet channel, interest rate transmission channel in the guidance of the low interest rate expectations, the channel of bypassing credit link, conduction channel of non-monetary assets and the fiscal expenditures expansion channel with the formation of fiscal policy. Secondly, quantitative easing monetary policy is carried out by mainly through promising maintaining low interest rates for a long time, providing liquidity to financial institutions, providing liquidity to finance market directly and purchasing long term government bonds. Thirdly, quantitative easing monetary policy is essential for the crisis and has a significant effect, primarily makes a loose monetary policy environment for the global economy to formate long-term low interest rate expectation, remodels the confidence of related economies and financial system stability, eases deflation, and launches the global economic recovery. Fourthly, quantitative easing monetary policy is not completely effective, but it also brings new risks. The main problem is that it can not effectively improve the information function of the financial credit markets and dredge monetary policy transmission "pipeline", and it increases global money supply in the long run and leads to inflation expectations. Fifthly, China's adjustment of interest rates and deposit reserve ratio can effectively control the money supply in the existing financial system, and crisis response shows the characteristics of high density and great efforts, so that economy is recovering. Sixthly, Chinese loose monetary policy can decrease the effect of the international financial crisis and the tighten policy in 2007 to prevent the economy to decline. Seventhly, quantitative easing policy should take influencing factors such as inflation pressures, unemployment and fiscal deficits into account in the exit strategy, through a gradual and orderly way out.