Essays on Impact of Quantitative Easing on Money Market and Interest Rate Assignment

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The paper "Impact of Quantitative Easing on Money Market and Interest Rate" is an outstanding example of a micro and macroeconomic assignment. This is a technique utilized by central banks or the Federal Reserve banks in lowering long term interest rates through the creation of demand for treasury bonds or notes or mortgage-backed securities. This technique is undertaken by increased investment in these instruments by these central banks and therefore reducing interest rates to rates close to zero (Bauer 2011, p. 17). Impact of QE on the Money market & Interest rate in the US since 2008? QE has had a big impact on the money market since it has assisted in increasing the supply of money in the country.

This is because QE has a direct effect of lowering long-term interest rates and therefore consumers and organizations feel liberated to apply for loans and thus there will be an increase of money supply in the economy (Gagnon 2011, pp. 43-49). Has QE had an impact on Loanable funds? QE has an effect on long term interest rates and therefore, there will be phenomena whereby loans and loanable funds will be cheaper for consumers and corporate organizations.

During the financial crisis of 2008 and after, the US government implemented QE to ensure that credit becomes cheaper for corporate organizations to pay debts and encourage borrowing (Yotov 2009). What effect did QE have on the American Dollar? QE has a large effect on weakening the US Dollar since the QE has a great on the availability of money in the market. Due to the low interest regime brought about by QE, the US dollar has been on a downward trend and the currency has lost as much as 17% in the last 3 years (Moosa 2014).

This is best shown in figure 1 below. Figure 1: showing inflation levels expected due to QE The current state of the American economy based on aggregate demand and supply and effects of QE on aggregate demand? Demand and supply depend on a lot of factors such as the state of the economy, inflation, and price index for goods and supplies. Due to the weakening of the US dollar and in the increased inflation levels in the country, aggregate demand has appreciated in the last 4 years for goods and services (Klyuev 2009).

References

Bauer, M and Rudebusch, G 2011, "Signals from Unconventional Monetary Policy." Federal Reserve Bank of San Francisco Economic Letter, Vol. 1, pp. 17-22.

Bodestein, M, Erceg C and Guerrieri, L 2009, “The Effects of Foreign Shocks when U.S. Interest Rates are at Zero.” International Finance Discussion Paper 983. Washington, DC, United States: Federal Reserve Board.

Funke, Michael and Marc Gronwald 2008, “The Undisclosed Renminbi Basket: Are the Markets Telling Us Something about Where the Renminbi-US Dollar Exchange Rate is Going?”, World Economy, Vol. 31(12), pp. 1581-1598.

Gagnon, J, Raskin, M, Remache, J and Sack, B 2011, "Large-Scale Asset Purchases by the Federal Reserve: Did They Work?" Federal Reserve Bank of New York Economic Policy Review, Vol. 17(1), pp. 41-59.

Harvey, F 2007, Forecasting, Structural Time Series Models and the Kalman Filter, Cambridge: Cambridge University Press.

Klyuev, V, Imus, P and Srinivasan, K 2009, Unconventional Choices for Unconventional Times Credit and Quantitative Easing in Advanced Economies. New York, NY: International Monetary Fund.

Kreinin, M 2010, International Economics: A Policy Approach, Boston, MA: Pearson Learning Solutions.

Martins, J, Scarpetta, S and Pilat, D 2007, “Mark-up Pricing, Market Structure and the Business Cycle.” OECD Economic Studies, vol. 27(2), pp. 71-106.

McKinnon, I. 2005, Exchange Rates under the East Asian Dollar Standard, Cambridge, MA: MIT Press.

Moosa, I 2014, Quantitative Easing as a Highway to Hyperinflation, Lowell, MA: John Wiley and Sons.

Pilkington, M 2013, The Global Financial Crisis and the New Monetary Consensus, London: Cengage Publishers.

Suranovic, S 2013, International Finance Theory and Policy. New York, NY: Palgrave Macmillan.

Yellen, J 2010, Hong Kong and China and the Global Recession, Federal Reserve Bank of San Francisco Economic Letter 4. San Francisco, United States: Federal Reserve Bank of San Francisco.

Yotov, I 2009, The Quarters Theory: The Revolutionary New Foreign Currencies Trading Method, Austin, TX: John Wiley & Sons, 2009.

Zhang, Z and Zhang, W 2009, The Road to Recovery: Fiscal Stimulus, Financial Sector Rehabilitation, and Exit from Policy Easing, Hong Kong Monetary Authority Working Paper 18, Hong Kong, China: Hong Kong Monetary Authority.

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