Study On Quantitative Easing

Quantitative Easing (QE) is also known as the unconventional monetary policy, which is used widely in the US-led western countries after the outbreak of financial crisis in 2008. QE influences the global economy extensively. Within the financial crisis, the traditional monetary policy failed due to the "liquidity trap". To maintain liquidity in the economic system, and prevent large-scale economic recession, Quantitative Easing inject liquidity into the economy by purchasing financial assets from the financial institutions and even non-financial institutions. Such purchasing on one hand providing emergent assistance to commercial banks to take precautions against and reduce financial risks and prevent systemic risk, on the other hand to achieve expansionary effect on the economy by injecting liquidity directly. By raising asset prices, lowering real interest rates and expanding the credit scale, QE can increase the total social demand.The large-scale application of quantitative easing has injected massive liquidity to the market. The excessive liquidity enhances the stability of the economy and promotes the restoring of economic growth. However, the accumulation of excess liquidity within the financial system increased the risk of awash with liquidity. The implementation and quit of quantitative easing is a main feature of the world economy within the past six years, the effect, risks and mutual transmission mechanism between the economy of its implementation has become a research focus. With the economy restores gradually, the quantitative easing policy will gradually quit, and the monetary policy will also return to routine. The quit strategy of quantitative easing and the economic trends is significant for researching. For China and other emerging market countries, the frequent movement of international capital which is brought by the accumulated "cheap" liquidity within the implementation of quantitative easing has brought great impact to the stability of the financial system, how to deal with impacts brought by the implementation and quit of the quantitative easing is a question of reality to many economies including China.This paper is divided into six chapters, and the quantitative easing is studied in many aspects including the definition of the quantitative easing policy, research status, transmission route, spillover effects, quit mechanism and its impact. The first chapter is an introduction, including the research background and significance, research approach and methods. The possible innovations are also introduced.In the second chapter, the existing studies of the quantitative easing were reviewed, the definition of quantitative easing is stated. Quantitative easing is essentially a non-traditional monetary policy, an unconventional means used to further stimulate the economy under the conditions of economic crisis, due to the failure of traditional monetary policy. Because the United States pioneered the quantitative easing policy, the term quantization easing has exceeded its original definition, and it is widely referred to all unconventional monetary policies. By defining the concept of quantitative easing, the theoretical basis, transmission channels, spillover effects, quit mechanism and the effectiveness of the policy are reviewed in this chapter.In the third chapter, the theoretical model of the quantitative easing monetary policy is analyzed. Based on a closed economic model, a new Keynesian DSGE model is established. Under the condition of open economy, the extended DSGE model is used to analyze the transmission mechanism of Quantitative Easing and the impact of it on China's economy,In the fourth chapter, take the United States as the object for studying, the transmission mechanism of the quantitative easing policy was investigated. For a better understanding of quantitative easing, this chapter first specifies and compares the content of the quantitative easing policy of the developed countries since 2008. There is some controversy of transmission channels, this chapter summarizes several major transmission channels, including portfolio rebalancing channel, channels of financial intermediation, management of inflation expectations, fiscal policy channel, exchange rate channel, etc., and carry out a detailed analysis of transmission channels. The channels of portfolio rebalancing channel and the management of inflation expectations both plays an important role. Finally, combined with the US economic practice, the effectiveness of quantitative easing monetary policy in the United States were analyzed by based on the VAR model, the impulse response of the main variable of the US economy under the impact of quantitative easing is analyzed, and the effectiveness of quantitative easing is validated.The fifth chapter focuses on the spillover effects of the US quantitative easing monetary policy to China. Quantitative easing spillover through several channels:the price channel, the interest rate channel, the exchange rate channel and the capital channel. Through these channels, the US quantitative easing policy brought both positive and negative impacts to China economy. On the one hand, the recovery of the US economic plays a positive role in promoting the Chinese economy. On the other hand, the implementation of the quantitative easing policy has brought China a serious imported inflation. Furthermore, the sterilization operations taken by the China's central bank to stabilize the exchange rate greatly interfere the operation space of China's monetary policy and brought a negative impact to the China Economy. In this paper, the empirical research on the impact of the quantitative easing to inflation of China is conducted based on the Deep LSTM neural network which is introduced to model the sequence data. The impulse response analysis implicate that the United States quantitative easing monetary policy has a positive impact on China's price level, which results in China's imported inflationary pressures.In the sixth chapter, the quit timing and quit mechanisms were analyzed. In this chapter, the economic situation of the United States before quit the quantitative easing was analyzed, which is consistent with the statement of the Fed. The Quit of quantitative easing has a significant impact on the stability of China's economy, and brought opportunities. Based on the SVAR model, we inspected the impact to the imports and exports of China, as well as the cross-border capital flows. The results show that the Quit of QE will result in a shortage of liquidity of China, and there positive and negative impact on the imports and exports, which may due to the due to the different response cycle of the imports and exports to the Quit of QE. To cope with the effects of the Quit of QE, the financial system should take a reform, and the RMB internationalization should be promoted to enhancing the Chinese position in the world economic system.The seventh chapter is the conclusion, and the prospect of the research work is summarized. Furthermore, the possible problems and further works are analyzed and discussed.