To What Extent Can Quantitative Easing Help Recover Economy?

Abstract

Abstract:

The first ever global quantitative easing after the 2008 financial crisis quickly had a significant impact on the world’s economy, but its effect on the economic recovery remains controversial. This paper, based on the factual impacts that quantitative easing has on the global economy, puts forward a new influence model - "Pulse Response", uses the theory of the virtual economy deviating from the real economy to analyze the intrinsic mechanism of impulse response, and also introduces TVP-BVAR model to empirically analyze the effects of the Fed’s quantitative easing monetary policy on the United States and China. The results show that the ultra-loose monetary stimulus in the short term played a crucial role in rescuing the financial crisis and easing the recession, but in the long term it cannot continuously promote real economic output and employment rate, nor constantly drive economic recovery. The financial crisis curbing policy should aim to increase the public’s real income and boost the real demand through fiscal transfer payment, tax breaks and strong support for the consumption credit, rather than stimulate speculative demands through the quantitative easing policy.

Key words: quantitative easing, impulse response, TVP-BVAR model

Su Zhi, Huang Yuting, Fan Wei, Yu Qiao. To What Extent Can Quantitative Easing Help Recover Economy?[J]. , 2015, 27(7): 23-32,57.

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