Effect Of Quantitative Easing On Inflation Of BRICS

Following the dramatic worsening of the global financial crisis in the fall of 2008, the economic statistics of America have been dismal. To ease financial conditions, beyond what can be attained by reducing short-term interest rates, the Federal Reserve has taken additional steps to improve the functioning of credit markets and to increase the supply of credit to households and businesses--a policy strategy which refers to the term "credit easing". The unconventional monetary policy exerts a current and anticipated effect on world economy through mechanisms from interest rate and exchange rate to balance of payments and price.BRICS(Brazil, Russia, India, China and South Africa), as the representative of emerging markets, is distinguished by the large, fast-growing economies as well as the quick and larger-scope capital flow. Moreover, its high level of GDP output and huge volume of trade contribute to the indispensable role in global affairs and world economic revival. However, inflation caused by credit easing can adversely affect economic growth rate of BRICS. Therefore, the research on the effects of credit easing on the economy of BRICS is of great practical significance.To study the effect of credit easing on the inflation of BRICS, the paper first elaborates the related theories about credit easing, differentiates this unconventional monetary policy with the conventional monetary policy and defines concepts related to inflation. Next, the essay analyzes the transmission mechanisms, particularly the mechanisms of interest rate and exchange rate, to state how credit easing can influence the inflation of other countries. Furthermore, this article establishes PVAR model to quantitatively evaluate the influence between credit easing of USA and the inflation of BRICS. By applying impulse response analysis and variance decomposition, the paper draws its conclusion:credit easing will influence the inflation of BRICS by the transmission mechanism of international commodity and exchange rate.