Quantitative Monetary Easing - the history and impacts on financial markets

A monetary authority or a central bank or the reserve bank of a country is an institution set up to manage the money supply, currency and interest rates in the economy. All the commercial banks come under the jurisdiction of this central monetary authority. In order to improve the growth rate of an economy a Central bank can employ a number of policies. Such policies adopted by the central bank must strike a balance between the long-term market expectations and short-term improvements in the economy. The economy might enter into a recession if the central bank tapers its activities too quickly. On the other hand inaction on the part of the central bank with regard to tapering might be inflationary in nature. In the context of India it will be wise enough if timely steps are taken to strengthen the economy to safeguard it from such external changes. There is an immeasurable impact on fiscal credibility and policy confidence when a country acts in advance without being forced to do so. Introduction Monetary Policy: Monetary Policy is an instrument through which the macroeconomic objectives can be achieved. For a lay man monetary policy may appear as measures taken up by a country and decisions implemented by a particular government in order to control the influence the level of interest rates, credit, volume of money, use of money in the economy and also the public expenditure. Broadly speaking it is representative of a monetary system that deals with all those monetary and non-monetary measures and decisions that have monetary effects. It ensures an efficient operation of the economic system by manipulating the supply, availability and cost of money in the economy. G.K. Shaw defines monetary policy as " any conscious action undertaken by the monetary authorities to change the quantity, availability or cost of money " .

In response to the financial crisis in 2008, the Federal Reserve implemented all possible monetary policies without significant success. The result was the presentation of the quantitative easing (QE) policy, which is a monetary policy where the Federal Reserve purchases mid-to long-term bonds and thus liquidates the market and increases money supply. This paper will illustrate how the quantitative easing benefitted the US economy to overcome the financial crisis. It will illustrate difficulties that QE has not solved like a strong increase in national debt along with US companies’ hording large amounts of cash abroad, which has made the mission of recovery very difficult for the Federal Reserve. Lastly, it will look at potential solutions besides QE to stabilize the United States economy.

Romanian journal of economic forecasting

In this paper we analyze the impact of quantitative easing policies issued by the European Central Bank, the Bank of England, the Federal Reserve and the Bank of Japan on credit risk, in nine states belonging mainly to the Central and Eastern European area. We use an ARMA-GARCH model to obtain abnormal returns and squared abnormal returns and we compute the values of the t test for each category of returns. The analysis shows that the QE events belonging to the four issuers have an important effect on credit risk in the case of the countries considered in this study.

A monetary authority or a central bank or the reserve bank of a country is an institution set up to manage the money supply, currency and interest rates in the economy. All the commercial banks come under the jurisdiction of this central monetary authority. In order to improve the growth rate of an economy a Central bank can employ a number of policies. Such policies adopted by the central bank must strike a balance between the long-term market expectations and short-term improvements in the economy. The economy might enter into a recession if the central bank tapers its activities too quickly. On the other hand inaction on the part of the central bank with regard to tapering might be inflationary in nature. In the context of India it will be wise enough if timely steps are taken to strengthen the economy to safeguard it from such external changes. There is an immeasurable impact on fiscal credibility and policy confidence when a country acts in advance without being forced to do so.

This is the fifth in a series of seven papers on interest rates and it covers the monetary policy models, a bank liquidity analysis, the concept of quantitative easing in terms of a bank liquidity analysis, and how a QE policy affects interest rates. The seven papers cover: (1) what are interest rates?; (2) relationship of interest rates; (3) composition of interest rates; (4) interest rate discovery; (5) bank liquidity & interest rate discovery; (6) role of interest rates; (7) an optimal rate of interest: the natural rate.

The Unconventional Monetary Policy: A Theoretical Approach

The financial crisis that erupted on August 2007, hampered the financial markets. Furthermore; with the fall of Lehman Brothers in September 2008, financial crisis evolved into a full fledged global crisis and depressed the real economy. Central Banks have responded by altering interest rate conventional monetary policy initially. But this was not enough to calm the financial markets down and revive the real economy. In this regard, major Central Banks FED, ECB, BOE and BOJ have begun to use liquidity support, asset purchases and forward guidance, namely unconventional monetary policies. They have expanded their balance sheets accordingly in order to relieve financial market stress and to revive the real economy. In this study, we explore the theoretical background of these policies and assess their effectiveness.