Create a 8 page essay paper that discusses Quantitative Easing (QE): Policy Analysis.
The UK mainly used an unconventional economic policy called quantitative easing (QE) to respond to the economic turmoil. The main idea of this policy is that the central bank purchases financial assets to pump a prefixed quantity of money into the economy so as to stimulate national economic growth (ibid). As part of this new economic policy, the UK’s Central Bank purchased £200 billion of assets, representing nearly 14 percent of the country’s annual GDP (ibid). .
The failure of Lehman Brothers in September 2008 caused investors’ confidence in the global economy to drop. As a result, dysfunctional international financial markets and tightened credit functions caused a decline in global financial transactions (Joyce et al 2011). In response to this situation, most central banks took measures to liberalize their monetary policy and thereby promote demand. In the UK, the Bank of England’s Monetary Policy Committee (MPC) trimmed down interest rates significantly as a way to loosen the nation’s monetary policy (ibid). During the 2008 quarter 4, the MPC cut down 3% points. an additional 1.5% points was trimmed down in early 2009. The Bank rate was further decreased to 0.5% in the early March 2009. However, regulators observed that these monetary measures were not adequate to curb the financial crisis. The MPC stated that nominal spending may not be able to meet 2% CPI inflation target for the medium term unless additional measures are taken (ibid). Hence, the MPC announced an extensive quantitative easing programme for promoting the country’s economic growth.