QUANTITATIVE EASING

Quantitative Easing

Quantitative Easing

Introduction

Economic institution is the most essential and significant one of all the social institutions of a society, that is carefully handled and is granted special attention and focus. The following paragraphs explain the two major channels: Policy Signaling and Money, through which the purchasing of assets affects the economy of the country. Discussion

Policy Signaling

Policy signaling channel includes all the information and knowledge that the economic agents get regarding the hopeful and expected monetary policy that is expected to result from the asset purchasing. This implies that the monitory policy is highly affected by the purchase of assets, and the information regarding impact that is being placed on the policy is highlighted by the policy signaling. In order to make the concept further clear, let us consider the following example: the assets purchase might cause the market participants to expect and keep looking for lower policy rates as compared to t3eh usual rates. It is eminent to mention here that the usual rates refer to MPC's determination to come up with the inflation target and thus it is directly linked to the increase or decrease in inflation (Joyce, Tong and Woods, 2011). This implies that at the time when MPC makes the decision to take initiation for the purchase of assets, the policy makers become more concerned about the threat of falling inflation, thus resulting in the risk of having inflation even below the target in medium term. The situation might lead to lower expectation in the inflation and thus the real state rates might be pushed even higher, with even the nominal rates being kept at lower than expected levels and thus resulting in a significant reduction in the spending in economy. Thus, the concerned individual can cause an increase in the spending in the economy by making ...