...------------------------------------------------- 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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...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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...1. To find and discuss quantitative information concerning the economy--for example, term structure of interest rates, GDP growth, inflation, etc. In inflation news, Ben Bernanke, the Federal Reserve Chairman, expects the monthly $85 billion Quantitative Easing (QE) purchase of assets to taper off by the end of 2013 (“Global Economy”, 2013).The tapering of QE in the United States is causing major concerns because this affects emerging market currencies. Currency in other countries is hitting a low. This markets have reacted rather quickly to their sliding currencies. Economists contend the severe reaction by investors has been unwarranted (“Global Economy”, 2013). A reduction in the pace of asset purchases by the Fed should be evaluated in the context of the nearly $3.5 trillion of assets already held on the Fed’s balance sheet and its ‘forward guidance’ on the main reserve rate (“Global Economy”, 2013). The Fed has consistently said that interest rates will not rise if unemployment is above 6.5%, and if inflation remains under control. With the unemployment rate moving at its current pace the unemployment target is unlikely to be reached until early 2015 (“Global Economy”, 2013). However it does look like the Fed is at the beginning of a path back toward operating normal monetary policy that could take as long as 5 years (“Global Economy”, 2013) . The Fed is not being pushed to consider tightening, mainly because of developments in the U.S. labor market and because...
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...Monetary Policy in the United States: A Brave New World? Stephen D. Williamson This article is a reflection on monetary policy in the United States during Ben Bernanke’s two terms as Chairman of the Federal Open Market Committee, from 2006 to 2014. Inflation targeting, policy during the financial crisis, and post-crisis monetary policy (forward guidance and quantitative easing) are discussed and evaluated. (JEL E52, N12) Federal Reserve Bank of St. Louis Review, Second Quarter 2014, 96(2), pp. 111-21. en Bernanke chaired his last Federal Open Market Committee (FOMC) meeting in January 2014 and departed from the Board of Governors on February 3 after eight years as the head of the Federal Reserve System. So, the time is right to look back on the Bernanke era and ask how central banking has and has not changed since 2006. There is plenty in the macroeconomic record from 2006 to 2014 to keep economists and policy analysts busy for many years, so in this short piece we can only scratch the surface of what is interesting about the Bernanke era. I will focus on three issues: (i) inflation targeting, (ii) Fed lending and other interventions during the financial crisis, and (iii) post-crisis Fed policy, in particular experiments with forward guidance and quantitative easing (QE). B INFLATION TARGETING When Bernanke began his first term in 2006, I think the big change people expected was an inflation-targeting regime for U.S. monetary policy, similar to what exists in New...
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...1155038183 Yang Mengdi 1155020855 Zhang Yiwen 1155010794 Zheng Qianfei 1155038175 Written by Gong Li 1155019071 Jiang Peng 1155038183 Yang Mengdi 1155020855 Zhang Yiwen 1155010794 Zheng Qianfei 1155038175 CONTENT Executive Summary 1 1, The US Fiscal Outlook 3 -Recent and historical fiscal outlook 3 -The US debt ceiling and recent crises 4 -Financial cliff (2013) and its impacts to the US economy 5 -The US fiscal future 6 2, Fiscal Situation and Treasury Market 9 -The role of US department of the treasury 9 -The role of the Federal Reserve 9 -The US treasury market 10 -The Fed, the interest rates, the QE and the taper 12 -The prediction of the future interest rate 13 -Summary 14 3, China’s involvement in the US Treasury market 15 -China’s Ownership of US Treasury Securities 15 -Reasons of China’s preference for the US Treasuries 16 -The Symbiosis between China and the US in Terms of US Public Debt Holdings 18 -Our Suggestion on China’s Future Position in the US Treasury Market 20 References 22 Executive Summary The state and local governments continue to face fiscal challenges in the short- to medium-term term. According to the Government Accountability Office, the fiscal situation in the US has just returned to the level preceding the year of 2007, but however, it is projected that the fiscal situation will deteriorate again over a prolonged period over the next 40 years until 2060. Historically, the US has always sorted out ways to keep fiscal...
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...FIN 331 Financial Institutions and Markets FINAL TERM PROJECT Spring Quarter Group 5 Shad Boots Alejandro Carral Antonio Fernandez Johnny Pham June 11, 2014 CALIFORNIA STATE UNIVERSITY OF LOS ANGELES CONTENTS Introduction ...................................................................................................................................................................2 Financial Markets ..........................................................................................................................................................3 Quantitative Easing ..............................................................................................................................................5 Financial Institutions .....................................................................................................................................................7 Credit Suisse ........................................................................................................................................................7 Wedbush Securities ..............................................................................................................................................9 Conclusion ................................................................................................................................................................... 11 Appendix A ......................................................
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...McKinsey Global Institute November 2013 QE and ultra-low interest rates: Distributional effects and risks Discussion paper The McKinsey Global Institute The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with facts and insights on which to base management and policy decisions. MGI research combines the disciplines of economics and management, employing the analytical tools of economics with the insights of business leaders. Our “micro-to-macro” methodology examines microeconomic industry trends to better understand the broad macroeconomic forces affecting business strategy and public policy. MGI’s in-depth reports have covered more than 20 countries and 30 industries. Current research focuses on five themes: productivity and growth; the evolution of global financial markets; the economic impact of technology and innovation; urbanization and infrastructure; and natural resources. Recent research covers job creation, infrastructure productivity, a new wave of disruptive technologies, trends in resource markets, and the shifting global company landscape. MGI is led by McKinsey & Company directors Richard Dobbs, James Manyika, and Jonathan Woetzel. Yougang Chen, Michael Chui, Susan Lund, and Jaana Remes serve as MGI principals. Project teams are led by a group...
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...NBER WORKING PAPER SERIES THE EFFECTS OF QUANTITATIVE EASING ON INTEREST RATES: CHANNELS AND IMPLICATIONS FOR POLICY Arvind Krishnamurthy Annette Vissing-Jorgensen Working Paper 17555 http://www.nber.org/papers/w17555 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2011 We thank Jack Bao, Olivier Blanchard, Greg Duffee, Charlie Evans, Ester Faia, Simon Gilchrist, Robin Greenwood, Monika Piazzesi, David Romer, Thomas Philippon, Tsutomu Watanabe, Justin Wolfers, and participants at seminars and conferences at Brookings, Chicago Fed, Board of Governors of the Federal Reserve, ECB, San Francisco Fed, Princeton University, Northwestern University, CEMFI, University of Pennsylvania (Wharton), Society for Economic Dynamics, NBER Summer Institute, the NAPA Conference on Financial Markets Research, and the European Finance Association for their suggestions. We thank Kevin Crotty and Juan Mendez for research assistance. This paper was prepared for the Brookings Papers on Economic Activity Fall 2011 issue. We have received an honorarium for the presentation of the paper at Brookings. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w17555.ack NBER working papers...
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...Quantitative Easing and the American Economy: How Saving is Saving Us From Inflation Mark Nasca „12 Colgate University April 30th, 2012 Abstract Following the Great Recession (2007-09), the Federal Reserve (Fed) utilized monetary policy instruments that had never been used in previous economic recoveries. With interest rates near zero, the Fed undertook rounds of quantitative easing (QE), a non-standard policy, in an attempt to stimulate the economy and help bring the nation out of the recession. In this study, the theoretical model presented by Nasca (2011) will be expanded to show that price level can be stabilized when saving and the money supply increase in tandem, all else constant. Following the theoretical discussion, this study will then utilize an intertemporal model with heterogeneous agents to describe the U.S. economy in order to analyze factors affecting consumer saving decisions when QE policies are enacted following an economic crisis. The goal of this model is to show how the saving decision is affected by the enactment of QE in a crisis environment, given the lower prevailing interest rate scenario and elevated levels of economic instability. This study finds that the increase in saving rate observed in the unfavorable rate environment can potentially be attributed to the increased uncertainty in future income expectations and heightened levels of risk aversion that are characteristic of a post-crisis economy. This serves as a theoretical justification for...
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...The Federal Reserve’s duties are to maintain the stability of the financial system, supervise and regulate banking institutions, conduct monetary policy and provide financial services to the government, such as operating the nation’s payments system. The establishment of the Federal Reserve System and how it conducts monetary policy, through interest rate variance, reserve requirement, money supply and several other programs, is fundamental to understanding the economy as a whole. The Federal Reserve Act, also known as the Glass-Owen Bill, was passed December 23, 1913 under President Woodrow Wilson (Goodseek.com). The Federal Reserve was born from the National Monetary Commission which proposed that the country needed an institution to deal with a poorly regulated banking system that was responsible for economic downturns (WFHumel.net). The original 1913 bill stated that the original act was “to have succession for a period of twenty years” and yet there have only been minor adjustments to the bill since that time (Goldseek.com). Federal Reserve is comprised of 3 divisions: the Board of Governors (BOG), the Regional Reserve Banks, and The Federal Open Market Committee (FOMC). The BOG guides the Federal Reserve’s policy actions, studies trends in the economy, and helps forecast the economic future, In addition, the BOG also participates in monetary policy-making on the FOMC, and is responsible for bank regulations and overseeing the operations of the Reserve Banks (Goodseek...
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...Threat of fiscal dominance? A BIS/OECD workshop on policy interactions between fiscal policy, monetary policy and government debt management after the financial crisis Basel, 2 December 2011 Monetary and Economic Department May 2012 Papers in this volume were prepared for the joint BIS and OECD workshop on “Policy interaction: fiscal policy, monetary policy and government debt management”, held in Basel on 2 December 2011. The views expressed are those of the authors and do not necessarily reflect the views of the BIS or the central banks represented at the meeting. Individual papers (or excerpts thereof) may be reproduced or translated with the authorisation of the authors concerned. This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2012. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1609-0381 (print) ISBN 92-9131-135-9 (print) ISSN 1682 7651 (online) ISBN 92-9197-135-9 (online) Preface The massive expansion of central bank balance sheets to contain the worst financial crisis in living memory raises questions about the theory and practice of monetary policy. The persistence in many advanced countries of large fiscal deficits and the prospect of high public debt/GDP ratios for many years is likely, at some point, to create policy dilemmas not only for central banks but also for public debt managers. Some countries have already had to cope with higher...
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...The Economy During The Recent Recession Joanne Cartier Mr. Fant ECO 100 March 15, 2013 A recession is defined as a decline in a country’s GDP (gross domestic product) or when the economic growth in negative, two or more consecutive quarters. The state of the economy during the most recent recession was the worst since the Great Depression. In 2008-2009, the economy decreased within five quarters, including four quarters consecutively. Two quarters showed a decrease more than 5% and Q2 in 2008 dropped 8.9%. This was the lowest drop in a recession since the Great Depression. In Q3 2009, the recent recession ended, because of economic stimulus spending. The recent recession was the longest since the Depression, lasting 18 months. The recession officially started in late 2007 to mid-2009. The Economic Security Index determined the impact of the recession by developing a measurement tool based on government economic data. The tool showed that due to the decline in income, increase in medical spending or both, Americans experienced a financial loss of 25 percent or greater. Southern states showed the worst economic losses from 2008-2010. Researchers found various reasons linked to these states hardship such as, poverty rates, the amount college graduates and unemployment rates. During the last recession, the national unemployment rate was at 5.0 percent making it the lowest in 2.5 years. From December 2007- June 2009, employment decline was the greatest of any...
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...May 4, 2013 Joe Rogers, GlobalREACH Capital Markets Blog Post Apple’s $17 billion bond issue dwarfs small business lending Why can't Small Businesses stock up on cheap cash, too? Last week Apple Computer borrowed $17 billion in one day from institutional investors via a very complex offering that demonstrated the depth and efficiency of the global capital market. Stan Schroeder reveals some insights in Mashable about how Apple, in one day, went from being debt-free to having obligations equal to 3.1% of the bank loans currently outstanding to all US small business owners combined, which amounted to $539.7 billion at the end of 2012. In fact, Apple's $17 billion in loan proceeds represents more than several large banks lent to their small business customers during all of last year. For example, Joshua Sophy reporting for SmallBizTrends last month confirms that the American Express Bank ($16.9B), US Bank ($13.8B), PNC ($9.9B) and Citibank ($9.1B) each lent less in 2012 to small business owners than Apple borrowed on Tuesday. And JP Morgan Chase, the largest US bank with almost $2 trillion in assets, only lent $19.8 billion to small businesses in 2012 or about 1% of their assets. So what made this Apple transaction so noteworthy and why can't Mom & Pop on Main Street get in on the cheap money party? In short it's because the global capital market works great with scale but has become very dysfunctional here at home for small and even medium-sized, middle market companies. And...
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...Interactions between sovereign debt management and monetary policy under fiscal dominance and financial instability Hans J Blommestein and Philip Turner1 Abstract Serious fiscal vulnerabilities arising from many years of high government/GDP ratios have created new and complex interactions between public debt management and monetary policy. Although their formal mandates have not changed, recent balance sheet policies of many central banks have tended to blur the separation of their policies from fiscal policy. The mandates of debt management offices have usually had a microeconomic focus (viz, minimising longer-term borrowing costs, while limiting refunding risks). Such mandates have usually avoided any explicit macroeconomic policy dimension but some major policy overlaps are latent. What is needed is a policy framework for all official actions that affect the maturity structure of government debt in the hands of the public. This requires more analysis of the macroeconomics of government debt management. A full debate about the allocation of functional responsibilities would have to take account not only of the economics, but also of political and institutional constraints. There are operational advantages in having in place appropriate governance arrangements that serve to forestall short-sighted policies and hold specific institutions accountable for their mandates. Keywords: Monetary policy, central banks, policy design and consistency, policy coordination, debt management...
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...Jun-10 Nov-10 Sep-11 Feb-12 Apr-11 Jul-12 Dec-12 IN FOCUS February 21, 2013 Economics Why Gold’s Lustre Will Fade by Avery Shenfeld and Emanuella Enenajor Avery Shenfeld It’s been a glorious run. The gold price climbed by nearly 500% from 2002 to Chart 1 Global Inflation Fears Overrated (416) 594-7356 avery.shenfeld@cibc.ca present, making it one of the best performing asset classes. But already, many of the forces 8% Inflation Rate* Benjamin Tal (416) 956-3698 benjamin.tal@cibc.ca Peter Buchanan (416) 594-7354 peter.buchanan@cibc.ca Warren Lovely that made the yellow metal so attractive look to be turning over, and expectations for other supportive factors are overdone. Gold will have its day in the sun at other points down the road, but the clouds on the horizon could portend still lower gold prices over the next couple of years. 6% 4% 2% 0% BRIC G7 + Eurozone (416) 594-8041 warren.lovely@cibc.ca Emanuella Enenajor (416) 956-6527 emanuella.enenajor@cibc.ca Andrew Grantham (416) 956-3219 andrew.grantham@cibc.ca “text text text” The Money Myth Gold’s allure has typically rested on two concerns about the alternative asset: money. Either inflation alone, or in concert with a steep currency depreciation, is seen as a reason for holding gold rather than the most prominent alternative, the US dollar. In terms of current inflation, it’s hard to see what anyone would be worried about...
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