Group204 LIU JIN BANK6005 S1 2014
An Unconventional Choice of Banking Sector: Quantitative Easing in Advanced Economies
Prepare for Professor Suk-Joong Kim
Prepare by Yang Liu 440080590 & Yingwen Jin 430586431
Executive Summary This report will discuss the causes and effects of quantitative easing monetary policy in US, UK and Japan on the basis of some relevant economic data. A brief introduction will discuss the nature of quantitative easing policy. In the US part, the global financial crisis will be analysed firstly, which is the cause of QE policy in US. Then, the influences of this policy, especially for banking industry will be addressed. In 2009, the Bank of England decided to implement the QE in UK as well. In this part, a brief comparison of consequences between US and UK will be addressed. The third part is relevant with Japan, which is the first country that applied QE policy in the world, to solve the asset bubble collapse in 2001. Finally, a brief comparison of US and Japan will be put forward and some summing-up will be argued in the conclusion.
1. Introduction
When the economy takes a downfall, the government wants the economy going again. They typically spend more money on the social project to flood the money to the market. Sometimes, it does not work, they will lower the interest rate of lending to encourage more people to borrow the money and stimulate economy. However, when the economy is hard to recover and the banks are experiencing insolvency, cannot make loans anymore, central bank and government seek to figure out another way to reverse the economy downturn. Quantitative easing (QE) policy is unconventional monetary policy that central bank provides extra money to banks or interbank market to achieve low and stable inflation and lower the long-term yield (Joyce, Lasaosa, Stevens& Tong 2011).It usually realized by using non-existed money to purchase government bonds and treasuries to directly inject the money and spur economic growth by
Prepare for Professor Suk-Joong Kim
Prepare by Yang Liu 440080590 & Yingwen Jin 430586431
Executive Summary This report will discuss the causes and effects of quantitative easing monetary policy in US, UK and Japan on the basis of some relevant economic data. A brief introduction will discuss the nature of quantitative easing policy. In the US part, the global financial crisis will be analysed firstly, which is the cause of QE policy in US. Then, the influences of this policy, especially for banking industry will be addressed. In 2009, the Bank of England decided to implement the QE in UK as well. In this part, a brief comparison of consequences between US and UK will be addressed. The third part is relevant with Japan, which is the first country that applied QE policy in the world, to solve the asset bubble collapse in 2001. Finally, a brief comparison of US and Japan will be put forward and some summing-up will be argued in the conclusion.
1. Introduction
When the economy takes a downfall, the government wants the economy going again. They typically spend more money on the social project to flood the money to the market. Sometimes, it does not work, they will lower the interest rate of lending to encourage more people to borrow the money and stimulate economy. However, when the economy is hard to recover and the banks are experiencing insolvency, cannot make loans anymore, central bank and government seek to figure out another way to reverse the economy downturn. Quantitative easing (QE) policy is unconventional monetary policy that central bank provides extra money to banks or interbank market to achieve low and stable inflation and lower the long-term yield (Joyce, Lasaosa, Stevens& Tong 2011).It usually realized by using non-existed money to purchase government bonds and treasuries to directly inject the money and spur economic growth by