Essays on Money Supply and Quantitative Easing Assignment

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Te paper "Money Supply and Quantitative Easing" is a wonderful example of an assignment on macro and microeconomics. The debate on the ways in which money should be put into the economy has been raging all over the country. This is because of the economic risk involved in taking such a step. Inflation is the biggest threat to such a move. The inflation report on the bank of England reveals view surprising elements. There is a possibility that the bank following the macroeconomic policy can choose to do more purchases of assets as one way of putting more money into circulation.

According to the report, the Consumer Price Index (CPI) was revised slightly upwards and inflation is also expected to rise to more than 1.8%. It’ s expected that more asset purchase will increase the demand. This is likely to impact on the CPI which has been lifted by the decline in the interest rates. It’ s also unlikely that the BoE will promise more of the QE but increase the asset purchase as they lower the lower gilt buying as the other option.

Change of the buying strategy could play a major role in distorting the gilt markets in order to match the DMO’ s issuance. However, this also does not offer the desired strategy as the bank is real worried of the effects of asset purchasing. The other option that is at the bank’ s disposal is the printing of more money. However, this could be more risk as this does not take into account the effect on the economic activities. This is because inflation is also likely to hike. Given the current economic crisis in Europe, taking faster measures will provide the fastest and quickest solution in safeguarding the country’ s economy.

Creation of direct electronic money could over a short term solution that will help keep the economy at easy. This is because the banks’ interest rates will be managed at the required levels as there will be more money in supply. However, this has to be traded with caution in order to make sure that inflation does not escalate and hurt the CPI. According to Osborne, the move will stifle economic growth as the government is planning to pump £ 50bn to the economy in the next few days.

References

1. Benford, Berry K et al, Quantitative easing, (Bank of England Quarterly Bulletin 2009), vol 49, no 2, pp 90–100.

2. Chen, Filardo D et al, The impact of central bank balance sheet policies on the emerging economies, (manuscript, Bank for International Settlements and Hong Kong Institute of Monetary Research, 2011).

3. Cross, Fisher P et al, The Bank’s balance sheet during the crisis, (Bank of England Quarterly Bulletin, 2010), vol 50, no 1, pp 34–42.

4. D’Amico, King T., Flow and stock effects of large-scale treasury purchases, (Federal Reserve Board Finance and Economics Discussion Series, 2010), 2010–52.

5. Gagnon, Raskin M et al, The financial market effects of the Federal Reserve’s large-scale asset purchases, (International Journal of Central Banking, 2011), vol 7, no 1, pp 3–43.

6. Hamilton, Wu C, The effectiveness of alternative monetary policy tools in a zero lower bound environment, (NBER Working Papers, no 16956, 2011)

7. Joyce, Lasaosa M et al, The financial market impact of quantitative easing, (Bank of England Working Papers, no 393. 2010)

8. Krishnamurthy, Vissing-Jorgensen A,: The effects of quantitative easing on interest rates: channels and implications for policy, NBER Working Papers, no 17555, 2011).

9. Swanson, E, Let’s Twist again: a high-frequency event-study analysis of Operation Twist and its implications for QE2, (Brookings Papers on Economic Activity, spring, 2011), pp 151–88.

10. Williams, J, Unconventional monetary policy: lessons from the past three years, (Federal Reserve Bank of San Francisco Economic Letter, 2011).

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