Critical Analysis of Quantitative Easing

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Andy Chung “Critical Analysis of Quantitative Easing” Mesa State College December 9, 2010 Dr. Ward Huffman Fina 341 – Public Finance Thesis: Critical analysis of Quantitative Easing in Japan and the United States The Quantitative Easing is one of the monetary policies that governments use to against recession or deflation. With the increasing of money supply of into the system, government will able to control interest rate. However, the impact of the economy becomes an uncertainty. The Quantitative Easing Policy (QEP) in Japan during early 2000s was an unsuccessful story. The Quantitative Easing Policy ended on 2006. The beginning of the Quantitative Easing created Hyperinflation without generating the extra aggregate demand. On the other hand, the United States Federal Reserve chairman Ben Bernanke declared the policy Quantitative Easing (QE) against the economic downturn in 2004. The expansion of the Central Bank’s balance gained more power for Federal Reserve on interest rate control. With the longer-term Treasury bond purchase, Quantitative Easing Two (QE2) will allow U.S. government control longer-term interest rate. There are arguments about Quantitative Easing will result in hyperinflation. Others arguments state that Quantitative Easing will increase the output of U.S. which will lead America get out the recession. This paper will focus on the historical data of Quantitative Easing Policy in Japan. How they implements the policy and the reason of not succeed. Also, with comparison of Quantitative Easing Policy in Japan and the Quantitative Easing in the United States, it will show the different between their central banks’ structure and the different economics interpretation. Japan Quantitative Easing Policy (QEP): The Quantitative Easing Policy was posted by Bank of Japan during 2001-2006. The goal was to fight against deflation in the 1990s.

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