The Study Of Theoretical Basis And Practical Effects Of Quantitative Easing Monetary Policy

We analyzed the quantitative easing monetary policy from four aspects: definition, theoretical basis, system framework, different countries' experience and the effect of policy implementation. As a country's short-term nominal interest rates is close or equal to zero, the central bank should provide emergency liquidity loans to financial institutions through open market operations or the creation of new monetary policy operating window for the purpose to ease the financial markets, to reduce the risk premium and to soothe financial panic. At the same time, the central bank also buy treasury bonds, asset-backed securities, commercial bills or corporate bonds through open market operations to hold down long-term interest rates, to inject a large amount of monetary base into the financial system, to reduce the cost of capital, to increase the money supply, to prevent deflation and to stimulate economic recovery. We tease apart theoretical basis and operating framework of quantitative easing, and elaborate the first quantitative easing policy practice of Japan in 2001-2006, the Fed and the European Central Bank's monetary policy response to the financial crisis and the debt crisis.We use America as our object of empirical analysis to study the implementation effect of quantitative easing policy. We find that: Firstly, in the aspect of financial stability, interest rate adjustment and other conventional monetary policy cannot effectively reduce the TED spreads which reflect financial risk premium. Financial stability effect of single innovative monetary policy tool is not obvious, but the effect of innovative monetary policy tools as a whole is very clearly, a series of credit support monetary tools to provide emergency liquidity support for the financial market, to avert a drying-up of bank credit and to avoid the bankruptcy of financial institutions in a greater range. Secondly, in the aspect of monetary supply, though quantitative easing policy, the Fed has injected large number of monetary base to the banking system, but the expansion of monetary base did not promote the bank credit, because the transmission mechanism of monetary policy was blocked. The monetary base which the Fed injected into commercial banks was back to the Fed's balance sheet in the form of excess reserves, but not went into the real economy in the form of loans. Expansion of the broad money supply is due to the expansion of monetary base, rather than due to the growth of bank credit. Thirdly, in the aspect of economic stimulus effect, we divided it into four channels: credit channel, inflation channel, asset price channel and exchange rate channel. The growth of M2 is conducive to the expansion of bank credit and the credit channel effect is remarkable. After the crisis, the effect of the growth in the money supply on prices is very weak, which didn't follow the classical monetary theory, the inflation channel is not significant. The stimulating effect of quantitative easing policy on asset price is obvious in the short term, but in the long term, there is no effect. The quantitative easing policy's impact on the dollar exchange rate is contrary, no effect in the short term, but after a period of time, it promote dollar index. Finally, we put forward some monetary policy suggestions for China's central bank based on the practice experience from America, Japan and Europe.