Macroeconomics - Quantitative Easing Essay Example | Topics and Well Written Essays - 1250 words

Macroeconomics - quantifiable Easing - Essay ExampleExpansionary policies involve the purchase of short term monetary government bonds by the key bank in parliamentary procedure to lower the market participation rate. However, when the interest rates argon minimal or at zero, traditional monetary policies cannot lower the interest rate any further. In quantitative easing, the economy is boosted by other methods. Short-term as well as long-term bonds ar purchased and the yield has a high probability of increasing. (Krishnamurthy and Vissing-Jorgensen, 2011) Quantitative easing is supposed to keep the inflation in check. However, the goods in the market to be sold have a fixed quantity and therefore, even a flooding of capital will not cut to an increase in the amount of goods and thus, it could actually lead to more inflation (Trefgarne, 2009). The interest rate of the economy is targeted by open market operations, which are the acquire and selling of bonds (short-term governme nt bonds) from banks and other financial institutions. The telephone exchange bank gives out the bonds and collects currency from this process, and this in construction overly affects the money supply and the interbank interest rate (Wieland, 2009). When a central bank cannot change the interest rate, they face a liquidity trap, and quantitative easing changes the economys scenario without affecting the interest rate. It is moreover related to the money supply when the interest rate cannot be further lowered. Therefore, it is also a form _or_ system of government that is used as a last resort measure rather than as a start-off resort one (Wieland, 2009). Also, even though central banks cannot affect the interest rate further, they are the ones who tamp out quantitative easing because their money is the one which is acceptable by everyone. However, in some cases, central banks cannot carry out their own quantitative easing and are dependent on other central banks to carry it out for them (Wieland, 2009). b) UK has a unique method of employing quantitative easing in order to importunity growth in the economy and change the money supply and keep the inflation rate in check at about 2%. Their first polity was to buy gilt-edged securities from institutions that are not banks. These also include bonds that are issued by national governments, also referred to as debt securities. Secondly, they conduct Open food market Operations, which were open to their gilt counterparts as well (Congdon, 2009). The lowest bids started being acceptable by banks, the standard of similarity being the market prices. Lastly, the HM treasury condemned APF (Asset Purchase Facility) which was initiated in 2009, when the commercial paper was financed primarily by T-bills and gilts. There are not only short-term gilts that are used, but also long-term gilts in this process of quantitative easing. They also borrow money from insurance companies and pension funds. People can also k eep more money in their bank accounts than they did before, as one of the ways to boost money in the economy. This way banks, apart from the central bank, will have more money in order to lend more (Congdon, 2009). The two main outcomes of assessing the situation were assessing the portfolios and the events that occurred. Portfolio rebalancing may cause UK investor to demand to go on a hike and gilts yield has decreased by a hundred points since this policy has been implemented. However, it is hard to tell the