The paper "Quantitative Easing Can Help to Reflate Our Economies" is a perfect example of a finance and accounting assignment. Quantitative easing (QE) is an unconventional means of stimulating national economies employed by central banks when conventional monetary policies are no longer effective. It is an expansionary monetary policy in which the central bank injects money into the national economy through purchasing public and private financial assets (Blake & Kirsanova, 2011, p. 41). Central banks often achieve this through the use of open market operations and standing lending facilities. In the past, central banks have primarily relied on monetary measures that seek to reduce interest rates during periods of recession so as to counter deflation or to raise inflation rates.
However, the recent financial crisis and economic recession have posed unusual challenges to central banks, making the use of conventional policy measures to be ineffective. In several cases, central banks have reduced their lending rates to levels close to zero without realising the intended objectives. This has made it necessary for monetary authorities to use QE to stimulate their national economies and to realise the inflationary objective (Blake & Kirsanova, 2011, p.
41). In most of the economies where this policy has been employed, the key inflationary objective has been to maintain the inflation rate at a particular set target. According to Hamouda (2009, p. 20), the QE policy was used in Japan in 2001 to counter the effects of a severe depression that had hit the country’ s economy for a long time. Though this policy helped Japan to stop inflation from falling down further, various issues made the policy ineffective in raising inflation to the target.
However, the application of this policy during the recent economic crisis by various nations such as the UK and the US has demonstrated that QE is not only a useful tool in preventing inflation from falling below the target; but it can also help to raise inflation to the target. This paper seeks to explain how QE can help to counter deflationary forces and to raise the inflation rate to the target. It examines its effectiveness in reflating our economies, drawing examples from cases of the US, the UK and Japan.
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