Quantitative Easing Analysis
Fiscal stimulus through Quantitative easing
In the event of escalating financial crisis, the Federal Reserve was faced with difficult choices despite previously terming the problem as isolated to certain markets. Quantitative easing was one of the choices that it had to make in order to salvage the economy. This is a monetary policy that involves purchasing of large quantities of long term assets while maintaining a large portfolio of government debt. The intended effect is reducing the long-term yields and in so doing increasing the efficacy of the monetary policy. Though the American policy was termed as credit easing, the approach is the same and involves increasing the financial base of the reserve bank or simply expanding its balance …show more content…
However, the Federal Reserve had to respond by guaranteeing their liabilities and recapitalize the financial institutions as well as limiting portfolio losses. With the main aim of regulating the inflation, quantitative easing ensures that inflation does not go below set standards or targets. However, this can be a short term and have inflation in the long term. As mentioned above, among the solutions in this policy involve purchasing long term government …show more content…
There is also the borrowing by households beyond their means meaning they are not able to service the borrowed facilities. The reason behind this is that with the improvement of the economy, the Federal Reserve expects individuals to improve their economic position which is not pragmatic. For employers to continue in business, they are forced to lay off, cut wages or increase the number of working hours in order to make profits. This is one of the major reasons behind borrowing beyond means to pay (Honkapohja and Kaushik 48).
Measurement of the Recovery
The answer to the recovery of the US economy can be found in the end of year 2013 when the economy showed signs of recovery and the Federal Reserve slowed down on its quantitative easing policy. However, with the effects of the recession still evident on the economy, the federal interest rates could not be drastically increased to avoid elongating the effects of the recession. In order to quantify economic recovery, the GDP growth rates and inflation are used (Ichiue and
In the event of escalating financial crisis, the Federal Reserve was faced with difficult choices despite previously terming the problem as isolated to certain markets. Quantitative easing was one of the choices that it had to make in order to salvage the economy. This is a monetary policy that involves purchasing of large quantities of long term assets while maintaining a large portfolio of government debt. The intended effect is reducing the long-term yields and in so doing increasing the efficacy of the monetary policy. Though the American policy was termed as credit easing, the approach is the same and involves increasing the financial base of the reserve bank or simply expanding its balance …show more content…
However, the Federal Reserve had to respond by guaranteeing their liabilities and recapitalize the financial institutions as well as limiting portfolio losses. With the main aim of regulating the inflation, quantitative easing ensures that inflation does not go below set standards or targets. However, this can be a short term and have inflation in the long term. As mentioned above, among the solutions in this policy involve purchasing long term government …show more content…
There is also the borrowing by households beyond their means meaning they are not able to service the borrowed facilities. The reason behind this is that with the improvement of the economy, the Federal Reserve expects individuals to improve their economic position which is not pragmatic. For employers to continue in business, they are forced to lay off, cut wages or increase the number of working hours in order to make profits. This is one of the major reasons behind borrowing beyond means to pay (Honkapohja and Kaushik 48).
Measurement of the Recovery
The answer to the recovery of the US economy can be found in the end of year 2013 when the economy showed signs of recovery and the Federal Reserve slowed down on its quantitative easing policy. However, with the effects of the recession still evident on the economy, the federal interest rates could not be drastically increased to avoid elongating the effects of the recession. In order to quantify economic recovery, the GDP growth rates and inflation are used (Ichiue and