A Study On US's Monetary Policy And Exit Mechanism In The Global Financial Crisis

Monetary policy in narrow sense refers to policies and measures which the central bank make full use of to affect the macroeconomic by the money supply and interest rates in order to achieve established economic objective of stable prices, promoting economic growth, realization of full employment and the balance of payments. Government often adopts expansive monetary policy to increase effective demand in economic depression while tight monetary policy in overheated economy. Monetary policy began to play the role of the macro control after Keynes revolution in the 1930s. The financial crisis provides us a good chance for further investigation on the Fed's policy actions to tackle crisis.Subprime mortgage crisis which began in march 2007 gave rise to the global financial crisis, which is the most severe financial crisis since the great depression in last century and causes huge economic losses in global. Governments make full use of traditional monetary policy instruments to save the economy. When the tradition of monetary policy doesn't work, governments bravely take the initiative, particularly federal reserve creates a series of innovative policy tools to cope with the financial crisis. As the birthplace of the crisis, the united states bravely tackle crisis with innovate policy operating, which not only effectively provide liquidity to market, and ease the crisis, but also provide the experience for future crisis management. This article will put forward expansive monetary policy taken by the united states from domestic and foreign points. The domestic policies focus on innovative monetary policy while foreign policies focus on dollar swap facilities which reflect global cooperation.The most fundamental reason of global dollar liquidity-shortage-is-the-arbitrage activities of banking sector. And procyclicality in central bank reserve management increase liquidity shortage of dollar. In addition to the establishment of swap facilities, there are three other ways of providing dollar liquidity. This article analyze difference of these four ways and compare dollar swap facilities with currency reciprocal agreement signed between China and other developing countries.Another key content of this paper is the rapid expansionary balance sheets of the federal reserve and corresponding problems which include future inflation and trend of US dollar. Actually, the base of money in US increases greatly but money supply basically unchanged, both the inflation level and the inflation expectations are low. In addition, this paper analyzes and summarizes the changes and the reasons of dollar exchange rate in the financial crisis. Especially the dollar doesn't depreciate but appreciate in the crisis for safe harbor effect of the US.The third priority is the exit mechanisms of quantitative ease policy which includes from the timing, alternative tools, steps, to coordination between the monetary and fiscal policy etc. this paper focus on the compare of those withdrawal tools and conclude that the federal reserve can gradually sells securities in the long run and cooperate with other strategy at the same time. Finally, this paper reviews the policies operation of federal reserve and put forward with a few suggestions for China.