Quantitative Easing - Decreasing Interest Rates Research Paper

Quantitative Easing - Decreasing Interest grade - Research Paper ExampleThe practice is entirely different from the usual approach of purchasing and change government bonds to maintain a targeted market pursual rate. It must be emphasized that a key bank uses new electronically created money for the purchase of fiscal assets in severalise to implement numerical easing policy. This practice is utile for increasing excess bank reserves which in turn may lower yields. The ultimate goal of the vicenary easing policy is to cut down long-term interest rates so as to stimulate economic activities. For this purpose, monetary authorities purchase financial assets of nightlong maturity and thereby reduce long-term interest rates on the yield curve. In addition, the calamus of duodecimal easing is very helpful to ensure that inflation rate does not fall downstairs the targeted level. This paper will analyze the pros and cons of quantitative easing and will discuss whether the Fed has a prime(a) of using this slam in a highly recessionary economy. Benefits of Quantitative Easing As Elliott (2009) purports, the original quantitative easing monetary policy may assists banks to keep excess reserves with them and hence to chip in largely to businesses and individual borrowers. In turn, businesses will use these additional funds to finance productive activities including al-Qaeda development and R&D. Similarly, individual borrowers will use this new fund for their day to day activities or investment purposes. This will ensure effective circulation of money throughout the economy. Hence, these increased economic activities will sure as shooting assist the economy to come out of stagnation and stimulate economic growth. Since this monetary tool is helpful to keep the inflation at a moderate level, it assists regulators to prevent the economy from falling into deflationary conditions. fit to Kollewe (as cited in the guardian, 2009), US, UK, and Japan are very much interested in quantitative easing policies as a way to stabilize economic growth. The writer points out that the US was the first country which apply quantitative easing as a response to its recessionary conditions. According to International Monetary Fund, the major(ip) developed countries that deployed the quantitative easing policy since the beginning of the 21st century were less affected by the 2008 global financial crisis as compared to other industrially developed economies. During the 2008 global financial crisis, it has been identified that the quantitative easing boosted the financial markets by adding liquidity. A weaker currency that amplified export demand is also identified to be one of the major desirable side effects of quantitative easing policy. To a certain extent, the quantitative easing technique has assisted economies to diminish unemployment rate. While analyzing the US economy, it is obvious that this unconventional monetary tool has played a crucial ro le in the economy in overcoming the dreadful impacts of the 2008 global financial crisis. As per the report of Hermansson (2010), economists hold the view that US entire budget deficit would be funded for a fiscal year, if the quantitative easing has been set as high as $1 trillion. In order to take advantages of the quantitative easing policy, the Fed used the returns of previous bond purchases to acquire new long-term financial assets in 2010.