Quantitative Easing Monetary Policy Research Articles

Quantitative easing (QE) monetary policy and its impact on inflation

Quantitative easing (QE) monetary policy and its impact on inflation

Analysis of the Impact of Quantitative Easing Monetary Policy on the Japanese Economy

Quantitative easing (QE), which was implemented as a measure to address deflation and promote economic growth, is subject to varying interpretations regarding its effectiveness to Japan economy. Supporters attribute the efficacy of quantitative easing (QE) to its role in mitigating a more severe economic decline through the stabilization of asset prices and the maintenance of low interest rates, so preventing future crises. Nevertheless, it is important to acknowledge that divergent viewpoints shed light on the challenges associated with attaining long-term economic expansion. These challenges are often attributed to persistent structural concerns such as a progressively aging population, restrained levels of consumer demand, and cautious levels of company investment. Critics express apprehensions regarding the inadvertent ramifications of extended quantitative easing (QE), encompassing imbalances within financial markets and potential threats to financial stability. This abstract presents a synthesis of several perspectives, highlighting the intricate relationship between quantitative easing (QE) policies and Japan's underlying economic issues. It contributes to a nuanced discussion on the overall effectiveness of QE in the Japanese context.

Potential Risks of Implementing Quantitative Easing Monetary Policy

As a result of the global recession caused by the 2020 COVID-19 pandemic, many countries adopted unconventional monetary policies. In response to the phenomenon of hyperinflation, the implementation of quantitative easing policies became the solution for many central banks to stabilise inflation. This paper will discuss quantitative easing monetary policy, the unlimited expansion model of monetary policy in support of fiscal policy, and quantitative tightening monetary policy, using the measures implemented by the Federal Reserve and the European Central Bank in response to the COVID-19 epidemic and their effects as examples. It is concluded that by analysing the forms that quantitative tightening can take, it is pointed out that the central bank maintains the market with complete certainty by signaling to participants that it is going to start implementing quantitative tightening and stating that it will only lead to a natural loss of bonds and won't involve any active sales, but at the same time it will limit the flexibility of the central bank's policy.

How to understand high global food price? Using SHAP to interpret machine learning algorithm.

The global food prices have surged to historical highs, and there is no consensus on the reasons behind this round of price increases in academia. Based on theoretical analysis, this study uses monthly data from January 2000 to May 2022 and machine learning models to examine the root causes of that period's global food price surge and global food security situation. The results show that: Firstly, the increase in the supply of US dollars and the rise in oil prices during pandemic are the two most important variables affecting food prices. The unlimited quantitative easing monetary policy of the US dollar is the primary factor driving the global food price surge, and the alternating impact of oil prices and excessive US dollar liquidity are key features of the surge. Secondly, in the context of the global food shortage, the impact of food production reduction and demand growth expectations on food prices will further increase. Thirdly, attention should be paid to potential agricultural import supply chain risks arising from international uncertainty factors such as the ongoing Russia-Ukraine conflict. The Russian-Ukrainian conflict has profoundly impacted the global agricultural supply chain, and crude oil and fertilizers have gradually become the main driving force behind the rise in food prices.

Comparison of US Quantitative Easing Monetary Policy Between 2020 and 2008

In March 2020, in response to the negative impact of the COVID-19 pandemic on the US economy and financial markets, the Federal Reserve resumed "unlimited" quantitative easing and launched a new monetary policy tool. This paper compares the difference between this round of QE and the last three rounds of QE in 2008 from the aspects of the current balance sheet of the Federal Reserve, the US fiscal stimulus policy and the Fed's monetary policy tools. Using the VAR model to estimate and compare the effects of the monetary policy tools in the financial market and the previous three rounds of QE. First, The Fed's balance sheet will shrink much bigger and faster than the previous cycle. Second, the Fed will act more urgently than the previous cycle to control inflation quickly to a reasonable range. Third, MBS purchases are positive for the USDX and the DJIA but are negative for the VIX.

2008 Financial Crisis: Causes and Costs

In 2008, the US financial crisis caused severe shocks to the global economy. In the escalating process of the crisis, the US government launched a series of rescue policies, which not only stabilized the domestic market, but also contributed to the global economic recovery. In recent years, the economic situation is not very optimistic, accompanied by systemic financial risks, reviewing the US financial crisis rescue policy is conducive to better financial reform. This paper will start from the causes of the United States financial crisis to solve the consequences, through the analysis of policy advantages and disadvantages to get the financial risk prevention and management suggestions. Research shows that the quantitative easing monetary policy and low interest rate environment in the United States caused the instability of the real estate market, which increased the generation of subprime loans. In time, the American government's no-kill policy prompted the International Committee of Banking Supervisors to release the third Basel Accord, aimed at stabilizing the financial situation in 2008. Based on this, the article summarizes the following policy enlightenments for our country's financial risk management: strengthen the coordination of monetary policy and fiscal policy; Strengthen international coordination.

Dynamic Quantity Theory of Money: Research on Monetary Cycle and Business Cycle Based on the Concepts of Issuing Money and Operating Money

The Quantity Theory of Money and the Theory of Credit Creation have been the major streams in the study of the quantity of money. Nowadays, monetary theory is dominated by the Quantity Theory of Money because the Monetarist School and the Rational Expectation School are both the advocates of the Quantity Theory of Money, which has resulted in a sharp decrease of scholars studying the Theory of Credit Creation. Nevertheless, the two theories will ultimately converge. Given that reason, we propose a new theory—Dynamic Quantity Theory of Money in this paper, by which the unification of the Quantity Theory of Money and the Theory of Credit Creation can be achieved. Based on the Dynamic Quantity Theory of Money, we further put forward the Theory of Money Operation Cycle, the Theory of Monetary Compensation and Theory of Investment Compensation targeting economic crises, expound why Quantitative Easing monetary policy fails and why Quantitative Easing does not cause inflation in the short term under the premise of these theories, and demonstrate the necessity of fiscal investment for rescuing economic crisis from the perspective of theories of money.

Asymmetric effects of monetary policy and output shocks on the real estate market in China

The real estate market is essential for promoting economic growth, and it plays an important role in the transmission mechanism of monetary policy in China. In this study, we apply a smooth transition vector autoregression model to investigate the asymmetrical effects of monetary policy and output on the real estate market. The empirical results verify the effectiveness of the monetary policy based on the real estate market and the asymmetrical effects of monetary policy and output on the real estate market. In addition, the smaller response of the real estate market to output in a low-speed growth regime means that negative shocks (e.g., COVID-19) from output have weak effects on the real estate market. Finally, monetary policy has bigger positive effects on the real estate market in a low-speed growth regime; thus, quantitative easing monetary policy can effectively stimulate China's real estate market at present.

Triangular arbitrage across forex and cryptocurrency markets during the COVID-19 crisis: a MRS-AR approach

ABSTRACT This article employs a Markovian regime-switching autoregressive approach to examine triangular arbitrage across forex and cryptocurrency markets during the coronavirus disease 2019 crisis. The findings suggest the following: (1) profitable triangular arbitrage tends to occur in the turbulent period during the crisis, significantly outperforming cryptocurrency investments; and (2) the persistent profitability of triangular arbitrage ensues from strong memory of high returns, low risk, and shock response to global quantitative monetary easing policy. Regulatory authorities should consolidate cryptocurrency supervision systems and establish cross-border coordination mechanisms to stabilize exchange rates and enhance market efficiency.

A Study on the Impact of Quantitative Easing Monetary Policy of the United States on China's Economy

This paper studies the impact of US quantitative easing monetary policy on China's economy. In order to cope with the financial crisis in 2008 and walk out of the economic downturn, the United States adopted quantitative easing monetary policy. However, due to the special status of the US dollar as an international currency, although this unconventional monetary policy has injected sufficient liquidity into the world economy, it also has significant negative spillover effects on other countries. On the basis of relevant theories, this paper empirically analyzes the actual impact of the policy on emerging economies represented by China through VAR model. The results show that the policy has a great impact on China's export trade, domestic prices, capital market and monetary policy, among which the impact on China's domestic price level is the largest. But the overall effects are complex, that there is no consistent direction of change, and the volatility is high. Based on the findings, the China government should put more emphasis on the foreign risks when making monetary policies.

Research on the influence of US QE policy on Sino-US trade

This article selects the major international commodity price index, the RMB against the dollar, foreign direct investment in China, the broad money supply of US, China's exports to the US and China’s imports from the US of monthly data from January 2020 to June 2021, using multiple linear regression model to study how the quantitative easing monetary policy of US impact on Sino-US trade during the outbreak of the COVID-19. The empirical results show that international commodity price index has a negative correlation with China's exports to the US and imports from US, the RMB against the dollar has a negative impact to China’s imports from US, the broad money supply of US has a significant positive impact on both China’s export to US and import from US and FDI has a positive impact to China’s imports from US to some extent.

Nonlinear Business Cycle and Optimal Policy: A VSTAR Perspective

This paper studies optimal macroeconomic policy when nonlinearity in the business cycle is described by a vector smooth transition autoregression (VSTAR). A structural identification of the VSTAR that yields a low-dimension and certainty-equivalent nonlinear quadratic regulator (NLQR) problem is derived. Optimal rules are calculated by adapting from the engineering theory the approach of State Dependent Riccati Equation, which allows standard dynamic programming techniques to solve NLQR problems. The methodology is employed to study optimal conventional and quantitative easing (QE) monetary policy using a VSTAR model esti-mated on data for the United States during 1979-2018. The model allows for regime changes during periods of economic slack and when interest rates are near the zero lower bound. The results highlight the quantitative significance of nonlinearity in the analysis of optimal monetary policy and how the size, timing and composition of QE can influence macroeconomic dynamics.

Price volatility spillovers between supply chain and innovation of financial pledges in China

This study investigates the price volatility spillover of commodities in China using the Granger causality test and the variable structure Copula model, by employing data covering the daily average transaction prices of silver, copper, aluminum, rebar, and fuel oil from 2009 to 2017. The results show that the causal direction of price volatility spillover is uncertain, and that the impact from the correlation coefficients of copper and aluminum is the highest. Hence, there is a clear long-run price volatility spillover between silver and fuel oil as well as between silver and aluminum. Macroeconomic influences on different combinations of commodities present similar changing structure points, such as the debt crisis in Europe, the reduction of the quantitative easing monetary policy proposed by the U.S. Federal Reserve, and the promotion of RMB internationalization. Overall, our findings provide a theoretical reference for commercial banks to make full use of the volatility spillover effect between commodity pledges and their combinations, in order to achieve the goal of avoiding any price volatility risk.

Interpreting TARGET balances in the European Monetary Union: A critical review of the literature

This is a review article focusing on the most important studies on the role displayed by TARGET balances in the European Monetary Union (EMU). In the context of the public debt financial crisis, large TARGET balances became crucial, reflecting funding stress in the banking systems of most crisis-hit countries. The increase in TARGET balances in this period was triggered by a replacement in these countries of private sector funding of banks by central bank funding. By contrast, the more recent increases in TARGET balances are largely attributable to the implementation of the expanded asset purchase program (EAPP) by the European Central Bank (ECB), also known as a quantitative easing (Qe) monetary policy. Nevertheless, we argue that the persistency of extremely large TARGET imbalances continues to be understood by financial markets as a signal of macroeconomic distress, which should be addressed to solve the underlying tensions among EMU member States.

A Monetary Analysis of the Liquidity Trap with an Application to the USA

Keynes emphasized a specific situation in which the liquidity preference becomes absolute, leading to monetary policy ineffectiveness when nominal interest approaches the zero-bound rate. This situation was termed a liquidity trap (LT) by Robertson and was popularized by the Hicks- Hansen framework (IS-LM). Early macroeconomic textbooks characterized the LT as the Keynesian case against the classical one. The “lowflation” environment experienced in the USA and Europe again brought the LT to the forefront. The quantitative easing monetary policy was introduced in Japan and better applied in the USA and EMU as a solution to overcome the LT. The macroeconomic mainstream contends that the LT is essentially a money demand problem, whereas we propose another interpretation; the current situation should be interpreted as a “banking problem” that impedes the transformation of the monetary base into money supply. To prove our thesis, we study the behavior of the USA money multiplier and the income velocity of money by comparing an earlier period with the 2007-2008 crisis period. Using a VAR and a VECM model, we compare the normal situation of monetary policy efficiency with the situation of LT monetary policy inefficiency. We prove that the LT focus should not be placed on the demand for money but rather on the behavior of the money supply – more specifically, on banks’ behavior leading to the transformation of the monetary base into the money supply.

Interpreting TARGET Balances in the European Monetary Union

This article analyses the role displayed by TARGET balances in the European Monetary Union (EMU). In the context of the European financial crisis, very large TARGET unbalances became crucial, reflecting funding stress in the banking systems of most crisis-hit countries. The increase in TARGET balances in this period was triggered by a replacement of private sector funding of banks by central bank funding. By contrast, the more recent increases in TARGET balances are largely attributable to the implementation of the asset purchase programme (APP) by the European Central Bank (ECB), also known as a quantitative easing (Qe) monetary policy. Anyway, too much large TARGET balances continue to be a signal of underlying tensions among EMU member countries. This situation calls for macroeconomic imbalances to be addressed, trust in banking systems to be re-established, and the institutional foundations of EMU to be strengthened.

Japan’s quantitative monetary easing policy: Effect on the level and volatility of yield spreads

We examine the effects on the level and volatility of yield spreads of the Quantitative Monetary Easing Policy (QMEP) of the Bank of Japan (BoJ) implemented from March 19, 2001 to March 9, 2006. We adopt an Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model to analyze daily data for the five year duration of QMEP. The purpose of QMEP was to reduce short-term interest rate expectations with the goal of bringing down long term interest rates to stimulate the economy. Under QMEP, the operational target of monetary policy was taken as the current account balances (CABs) of financial institutions held at the BoJ. In support of QMEP effectiveness, we find that the policy to raise CABs was indeed associated with a decrease in yield spreads across all maturities. At the same time, the policy may have increased the volatility of yield spreads at short and medium time horizons, perhaps due to unevern demand for government security issues that nevertheless left confidence in the future of low interest rates intact. Preserving liquidity at or above the CABs target range was found to decrease yield spreads.

The Investment Strategy of Taiwan Futures Market after Quantitative Easing Monetary Policy

After the financial crisis in 2008, US Federal Reserve adopted quantitative easing monetary policy to boost the US economy. However, the hot money made tremendous shocks in financial markets. After 2015, the US job market stabilized and the Fed ended the QE and started raising interest rates. The aim of this study is to show that institutional investors affect TAIEX futures through MSCI Taiwan Index Futures, and consequently affect Taiwan 50 ETF. This study incorporates the price spread of TAIEX futures and MSCI Taiwan Index Futures in the model to conduct backtesting using program trading. This can help us determine if the mean reversion model is better than the contrarian model and the momentum model. The results show that the mean reversion model has higher profits and stabilities than the contrarian and momentum models. The results suggest that incorporating the price spread of TAIEX futures and MSCI Taiwan Index Futures and utilizing the mean reversion property of behavioral finance can enhance trading performance.

Bank Lending Channel in Transmission of Monetary Policy in Japan, 2000–2012: The Sign Restrictions VAR Approach

This paper investigates empirically whether the bank lending channel of monetary policy existed in Japan from 2000 to 2012. We employ the sign restrictions VAR approach to deal with the identification problem. In particular, we focus on the differential effects of a quantitative easing monetary policy regardless of bank (City banks vs. Regional banks) and firm (all enterprises vs. small and medium-sized enterprises－SMEs) size. Our impulse response function analyses show that following a quantitative easing monetary policy shock, the lending of Regional banks increases more than that of City banks, and the bank lending rate of Regional banks declines in a larger magnitude. Moreover, the responses of output to reserve supply are larger in Regional banks than that in City banks. Our variance decomposition analyses show that a larger proportion of the forecast error variance in the bank lending of Regional banks relative to City banks, and a larger proportion of the forecast error variance in the bank lending to SMEs relative to all firms can be explained by monetary policy shock. Similarly, the loans of Regional banks have a larger impact on output than the loans of City banks, and the loans to SMEs have a larger impact on output than the loans to all firms. Moreover, output is more affected by the reserve supply to Regional banks than to City banks. These results together indicate that a quantitative easing policy has a greater impact on the real economy through the lending of Regional banks.

Explore the Impact of the Trading Value, The Oil Price and Quantitative Easing Policy on the Taiwan and Korea Stock Market Return with Quantile Regression

This paper aims to apply the quantile regression analysis to explore the impacts of the stock market trading value, change in international oil prices, and the US implementation of Quantitative easing monetary policy on Taiwan’s and Korea’s stock index returns. This study is in accordance with the 2008 US implementation of quantitative policy to conduct research on 53-month data collected from April 2004 to February 2013 in order to explore the differences between before and after the US implementation of quantitative policy. The results find that under situations of high distribution of stock index returns, Taiwan’s and Korea’s stock markets reveal the same phenomenon of “the stock price increases and the trading volume rises, the stock price declines and the trading volume descends”. Meanwhile, under situations of low distribution of stock index returns, the Korea’s increasing stock trading value will cause stock index returns to fall. Noteworthy, under situations of low distribution of stock index returns, oil price changes are found to have positive effects on Taiwan’s and Korea’s stock index returns. Finally, the US implementation of quantitative easing monetary policy is indicated to have non-significant influence on Taiwan’s and Korea’s stock index returns. Further investigating whether there are inconsistencies before and after the implementation of quantitative policy regarding the impacts between these two nations’ stock trading values and oil price changes on stock index returns, the results show no differences.