Bank of England Quantitative Easing(Benefits and consequences) Dissertation

Bank of England Quantitative Easing(Benefits and consequences) - Dissertation Example On the other hand, such a reaction may be just what the UK and US need in order to prevent a deflationary spiral as a result of the financial crisis. If the first round had no detrimental effects, the question remains as to how far is right, because a second round may go further into creating inflationary pressures than expected. The purpose of this paper is to examine whether or not QE could be a viable means of implementing monetary policy to address the present financial morass. Findings arrived at are tentative, because of the relatively short time the quantitative easing policy has been implemented, which spans only about two years for both the US and the UK. For Japan, on the other hand, while QE was implemented for a full five years, the results are inapplicable to the present situation because QE was meant to address Japan’s negative inflation rate already registering for several years, which is entirely different from the threat posed by the present crisis on UK and t he US. Acknowledgment Table of Contents Title Page 1 Abstract 2 Acknowledgement 3 Table of Contents 4 Chapter 1: Introduction 6 1.1 Background of the research topic 6 1.2 Objectives of the study 7 1.3 Research question and subquestions 8 1.4 Scope and limitations of the study 8 1.5 Ethical considerations 9 Chapter 2: Review of related literature 10 2.1 Background of quantitative easing 10 2.2 Quantitative easing as implemented in the UK 12 2.3 Viewpoint of the sceptics 19 2.4 Viewpoint of the enthusiasts 21 2.5 Modest impact assessment 22 2.6 Other Econometric Studies 23 Chapter 3: Methodology 24 3.1 Research strategy 24 3.2 Data description 24 3.3 Data gathering methodology 24 3.4 Analysis of data 25 3.5 Limitations of data and analysis 25 Chapter 4: Case study – US and Japan 27 4.1 Quantitative easing in Japan 27 4.2 Quantitative easing in the United States 33 4.3 Comparison among the US, UK and Japanese QE 38 Chapter 5: Results, analysis and discussion 40 5.1 Analysis of v ariance with log of monetary base and log of long-term interest rate as variables 40 5.2 Analysis of variance with monetary base and long-term interest rate as variables 43 Chapter 6: Conclusion 46 6.1 Summary of the dissertation 46 6.2 Findings of the study: answers to the subquestions 46 6.3 Conclusion: answer to the research objective 47 6.4 Recommendations for future research 48 References 49 Appendices 53 Chapter 1 Introduction 1. 1 Background of the research topic Quantitative easing is a process which the central banks often consider as a last resort to inject liquidity in an economy, without caring for its own quantity of reserve assets (Organisation for Economic Co-operation and Development 72). Often banks opt to buy off all government securities in circulation in the open market in their aggression, without preferring to fix any target rate of retaining their money reserves (Baumol & Blinder 271; Marta & Brusuelas, â€Å"Quantitative Easing†). Such an unorthodox st rategy, as quantitative easing, helped to bail out economies like Japan at a time when it was undergoing its worst phase of liquidity crunch. The method helped the nation to revive from its plight through enhancing its monetary base significantly, though meanwhile the government had to face immense deficits in their budgets (Organisation