...------------------------------------------------- Quantitative Easing ------------------------------------------------- Table of Contents Quantitative Easing in general: 2 How the USA Federal Reserve has put QE in practice. 3 QE plan recently approved by the European Central Bank. 4 Likely effects of QE in the Euro Area in relation to the aggregate supply/aggregate demand model and the loanable funds theory 5 Discuss the effects the QE can have on exchange rates. 6 Abstract This paper presents an overview of the policy of Quantitative Easing, used by central banks in an effort to revive the economic system and interrupt a period of economic recession. Quantitative Easing in general In the instance of a crisis such as the one of 2008, Central Banks put monetary and fiscal policies in practice in order to limit the damage to firms and households an maintain a healthy economic environment. The most used and widespread policy used by Central Banks acts upon the interest rates. Lowering interest rates, for example, makes it more convenient for individuals and firms to increase investments rather than save, thereby increasing spending. An increase in investments and spending within the system should, in theory, take the economy out of a recession. However, once the interest rate reaches zero (zero bound ratio) without obtaining any results, CBs must adopt other policies. One of these is the policy of Quantitative Easing; it consists in CBs providing liquidity to...
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...International Finance May 10, 2015 U.S International Debt Please look at the International part of the U.S. Government debt and discuss, 1) why the country has had to rely on International lenders, 2) why the situation with the International lenders may have caused the U.S. Federal Reserve System to initiate Quantitative Easing, and 3) give your opinion of the possible future state of the U.S. economy as it relies on International lenders. This future state should cover government issues, corporate issues, and individual issues. The history of international lending to developing countries shows surges of lending and recurrent financial crisis. Consequently, international lenders have proved to be very important entities during financial crisis. In my personal opinion the United States government has had to rely on international lenders to enable higher spending without having to increase taxes and to meet the debt that the government has created during the past several decades looking forward to recover and stabilize the economy. From the beginning of the early 1990s, the United States has borrowed heavily and continuously money from international lenders and from its trading partners due to the crisis that the United States economy has been experiencing since the recession. Developing countries can be at a disadvantage when it comes to borrowing funds from international lenders. From my point of view, problems can arise when governments do not have the knowledge and experience...
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...QUANTITATIVE EASING: A RATIONALE AND SOME EVIDENCE FROM JAPAN This paper was prepared for the NBER International Seminar on Macroeconomics 2009. Volker Wieland thanks the European Central Bank for support as Duisenberg Research Fellow while the initial presentation for the ISOM conference in June 2009 in Cyprus was prepared. The help of Alberto Musso from the European Central Bank in collecting data on Japan is gratefully acknowledged. Helpful comments by conference participants, and in particular by Huw Pill, Vincent Reinhart, Frank Smets, Christian Thimann and Athanasios Orphanides were highly appreciated. The usual disclaimer applies. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2009 by Volker Wieland. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Quantitative Easing: A Rationale and Some Evidence from Japan Volker Wieland NBER Working Paper No. 15565 December 2009 JEL No. E31,E52,E58,E61 ABSTRACT This paper reviews the rationale for quantitative easing when central bank policy rates reach near zero levels in light of recent...
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...Abstract Evaluation of the Quantitative Easing (QE) stimulus package was reviewed within the framework of this research. The financial crisis that resulted after the collapse of the auto industry along with the savings and loans scandals has given rise to QE. QE can be defined as an attempt to subdue interest rates which in turn encourages spending and stimulates the economy. The U.S. is currently on round three of the QE program. Research of QE seemed important as it has been extended three times. This research attempted to answer what the role of QE is in our economy and what the effects are on our business sector. Also, whether or not this stimulus is actually helping the U.S. was called into question. The preliminary data did not support that QE was actually helping as the results have been very slow or non-existent. Whether it is or is not helping may not be seen for years to come. The role of QE to stimulate the economy has been very slow as well and the results on the business sector have only increased the price of gasoline as well as other commodities. The increased costs have been passed on to the consumer which has not aided in stimulation of the economy. Overall, QE has not afforded many benefits and has done nothing more than subdue interest rates, slow the decline in Gross Domestic Profit (GDP), increase transportation costs, and devalue the U.S. dollar. Table of Contents Introduction………………………………………………………………………………………..4 Literature...
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...the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency. There many reasons for devaluation, and but most have severe consequences that do more harm than good. One of the main reasons a country devalues its currency is to increase its ability to bring in production from the outside and boost its own labor and development. When outside currencies are much stronger, a country can attract international business with cheaper production and labor costs by having a lower valued currency. Alternatively, a country may want to recover its currency from overseas holders. By devaluing the currency it becomes worth less and cheaper to buy back. They country can then re-inflate the value again over time to bring it back to its original state, however it’s no longer sitting overseas. Finally, a country may want to devalue its currency to pay off international debt. If its original loans were made in the same currency, the country could devalue the monetary value by printing more to then pay off the loan faster. This approach gets the borrow The fastest way to devalue a currency is through inflation. When inflation occurs, it takes more currency to buy the same product or service. The value of the currency unit becomes less relative to goods and prices people charge. For a government, normally inflation is something it doesn’t want because it can destabilize the...
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...Managerial Economics & Quantitative Methods To what extent is there an asymmetric information problem between your company and your customers? Use an example of a product you sell that consumers will not be able to detect the quality of before they buy it. What are some of the methods you may use to resolve this problem? Do warranties always signal quality? The company I am working for is Coca-Cola Hellenic Business Service Organization that main aim is to deliver accounting and financial services to all entities in the Coca-Cola Hellenic Organization that are stand as our Customers. We are responsible for 29 countries for Accounts Payable, General Accounting, Collection and Disputes and HR. Now, from this year we are taking over the Purchasing Administration from all countries. There are many examples of the asymmetric information problems between BSO and Hellenic companies. Mainly they are in the field of quality and timing of the work done. Unfortunately, our Customers were and are completely unaware of the quality of our products and services we offer before we completely take over the responsibilities for them. To resolve this issue we do the following actions before we take over particular department and responsibility: Make all accounting and financial processes standardized that means that we design operational procedures and flows in advance. After the Customers agree with the processes. They are designed for all countries and are followed from...
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...forever and by the 1990s, Japan’s economy had come to a grinding halt due to a massive collapse in both the real estate and stock markets of the Japanese economy and remains in a recession that has lasted till now. As Japan looked to face another year of stagnant growth of the economy, Japan’s Prime Minister, Shinzo Abe, decided enough was enough. With the assistance of the new governor of the Bank of Japan, Shinzo Abe embarked on a radical economic plan that focused on three arrows of design. The arrows depict the strategy of Shinzo Abe’s “Abenomics” program in which it focuses on fiscal stimulus, monetary easing, and structural reforms. (International Monetary Fund 2013) It is almost near the two year mark since the implementation of Shinzo Abe’s “Abenomics” program has begun. Although typically, economic effects of governmental policies require years to fully see the effects, “Abenomics” was designed as a jumpstart program with future decisions dependent on the immediate aftereffects of implementation. With the initial completion of the first two arrows of the “Abenomics” economic program and the implementation of the third arrow of structural reforms of the Japanese economy, labor, and tax...
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...|Surname |Helliwell | |Given name |James Maxwell | |Email |Jhel8204@uni.sydney.edu.au | | | | |Unit Code |BUS290 | |Unit name |International Financial Markets and Institutions | |Enrolment mode |External | |Date |10/4/2014 | |Assignment number |1 | |Assignment name |Essay 1 | |Tutor |Murray Brennan ...
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...Team #5: Fernando Puiggari, Afiya Williams, and Yu Tang MBAA 505: Economic Environment Of Business Prof. Victor Petenkemani Case 3: Due 10/30/2014 Quantitative Easing in the Great Recession. 1. You will consider the various impacts of QE1, QE2, and QE3. What accounts for the differences in the market reactions to these three policy actions? What the Fed did * On Sept. 8, 2008, the U.S. Treasury seized control of mortgage giants Fannie Mae and Freddie Mac and pledged a $200 billion cash injection to help the companies cope with mortgage default losses. * About a week later the government bailed out American International Group Inc with $85 billion. * The Fed refused to save Lehman Brothers and the company was forced to file for bankruptcy. Some of the largest financial institutions were on the verge of collapse as the mortgage market melted down. As the crisis hit the global market, the credit freeze spread. * The Treasury and the Federal Reserve began working on a $700 billion bailout plan. * President George W. Bush signed the bailout plan into law Oct. 3. * Weeks later, on Oct. 29, the Fed cut the key interest rate to 1 percent. What was expected? The government claimed the bailout was necessary to provide stability in the economy and prevent disruption in the financial system. The interest rate cut aimed to revive the economy, help free up credit and make loans cheaper to consumers and businesses. What happened The financial...
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...vital to any economy in the world, achieving good numbers in both of them could be the key in order for a country to build a sustainable economy that could develop to new heights. The two countries that I’m going to be talking about today are Morocco and the UK, even though it is very difficult to draw comparisons between them due to the massive economic difference, both economies still have their own weaknesses and strengths. The UK is regarded as a very strong economy worldwide and it stands 8th in the highest GDP figures with an outstanding 2,181 trillion dollars GDP at PPP. One of the UKs main advantages is its education system which is regarded as one of the best in the world and has a big influence towards the UKs income with many international students attracted to come and study in the UK which keeps tourism constantly on a high. Another valuable source of income the government receives is the money from taxes as taxes are known to be very high at the UK especially on unhealthy products such as alcohol and tobacco which is a very smart move from the government as these kind of products are known to be a necessity for many people and it ends up leading to diseases which increases the costs of health care so the money from the taxes could be used to cover up these costs. Another thing that makes the Uks economy so superior is the strength of its currency which is one of the strongest in the world and has a very positive influence on the exports and the imports with the exchange...
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...the Gross Domestic Profit. This trade deficit causes damage to the United States manufacturers and destroys jobs. Chinese products are very attractive because their low labor cost. When U.S. people purchase Chinese manufacturing goods, their manufactures are compensated in dollars which are placed in a United States bank account. Then, the Chinese need to exchange the dollars to Yuan and as a result via their banks they sell the dollars to the Chinese Central Bank which is known as the People’s Bank of China. Given that the U.S trade with China does not balance, the result will be a shortage of the Yuan and a surplus of the U.S dollar in the People’s Bank of China or Central Bank. In those circumstances, according to the rules of international trade the People’s Bank of China should sell the dollar on global currency market and buy the Yuan in exchange which will result on weakening the U.S. dollar and strengthening the Chinese Yuan, that way equilibrium works to re-established and the trade gap closes....
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...1. What would happen if Brazil allowed the real to float freely in FX markets: a. Immediately If the government did not intervene to weaken the real to around R$2, I suspect the real would be much stronger. This would propel imports and also capital inflow into the country due to the high interest rates. Since the government wanted to make Brazil competitive for exports, a weak currency would dissuade companies from exporting since they would earn less in revenue for every $ exported. Further with a free currency and no capital controls, the ease of investing and removing capital would make the Brazilian stock market (which as it is, is very small) more susceptible to foreign capital. b. Medium term (1-2 years)? In the medium term, the movement in the real would dependent on several factors such as: global sentiments, status of the euro crisis, relative attractiveness of other market (such as Mexico, Africa, South East Asia) etc., However it would be ideal if the real was stable in the range of R$2 +/- 10% This would ensure stability in the economy and capital markets. A strong currency would encourage imports while a weak currency would discourage investments. Further a weak currency would also make the corporates in Brazil nervous as they will need to pay more reals for every $ of debt on their books. Would these be adverse developments for Brazil? Why? I think it is important to have stability in the currency before allowing it to float freely. Brasil is still...
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...Fiscal and Monetary Policies Name University ECON CL # Professor Name Date Submitted Fiscal and Monetary Policies American great depression made policymakers come up with some drastic actions to counteract it. The policy makers are adopted and implemented various monetary and fiscal policies to reduce the effect of the depression. As a counteractive measure, economic decisions makers increased government spending and cut taxes while financial policy makers opted for quantitative easing that is a move by the central bank to introduce new money into the money supply (Blinder, Zandi, & Moody's Economy.com, 2010). There has been a raging debate on the issues surrounding the action taken by the federal government but to understand better the effects it is prudent first to know the reason behind the decision and the roles of both national and fiscal policies. In the past, around 1930s classical economist held that the economic downturn can only correct itself and doesn’t need intervention from government. American great depression made many economist and policy makers to give a second thought to classical economist by seeing a need for policy intervention (Blinder, Zandi, & Moody's Economy.com, 2010). Since then monetary and fiscal policies have remained the key intervention measures to correct economic downturns. When monetary and fiscal policies applied resulted in maximum employment growth and stable inflation. Both of these...
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...In the Oct. 28-29 FOMC meeting, the committee is expected to make decisions on the continuity of its asset repurchase program and the federal funds rate. Fed Chair Yellen should present the fact that in Q3, the economy has continued to grow at 4% rate. And that unemployment rate has dropped to a low 5.9%. These positive signals indicate a healthy economy moving towards maximum employment and price stability. Chair Yellen should first confirm that the current $5 billion asset repurchase program will end by the end of the year. And second, should present the expected economic progress and determine for how long ZIRP will be maintained. It is also important for Chair Yellen to discuss how the Fed is going to protect the economy from future potential recessions especially by discussing these three points: 1. Progress report on the Dodd-Frank act, how to expedite and simply the rulemaking process. 1. TBTF banks are a risk to financial stability. A plan must be put in place to decrease their size so that failure becomes an acceptable option. 2. The Fed should move towards a data-driven organization. Using the Taylor rule to set its federal funds rate will remove any second guessing. 1. What is the current economic situation and how did we get here? Give your policy recommendation with some detail, including ideas on the timing and details of normalizing policy, including exit tools. The U.S. economy is recovering from the deepest recession since the Great Depression...
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...(iv) Your country is in a recession. You feel that a policy of exchange rate depreciation will stimulate aggregate demand and bring the country out of the recession. This essay examines the effectiveness of using exchange rate depreciation to stimulate aggregate demand in order to bring a fictional country, Australand, out of recession. It will explain how a policy of exchange rate depreciation can increase aggregate demand and how this will stimulate economic activity and bring Australand out of recession. The process of depreciating the currency will be explained as well as possible ramifications of this policy. Alternative options to increase aggregate demand will also be explored. A recession is technically when an economy has experienced two successive quarters of negative gross domestic product (GDP) growth. For this to happen the total amount of goods and services produced by a country must contract on a quarter by quarter basis for six months or more. (http://news.bbc.co.uk/2/hi/business/7495340.stm) It therefore stands to reason that by increasing the total amount of goods and services Australand produces, known as aggregate output, will bring Australand out of recession. Blanchard and Sheen (2009 p39) state that in the short run the main determinent of aggregate output is demand and that changes in demand can lead to an increase in output. Aggregate demand is the total quantity demanded for output at a given price level and it is therefore necessary to...
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