The influence of quantitative easing monetary policy on Japan and the Research Paper

The influence of quantitative easing monetary policy on Japan and the United States - Research Paper Example Expansionary monetary policies aimed at stimulating the economy usually involve central banks buying short-term government bonds so that the market interest rates can be lowered. Nonetheless, when short-term interest rates go towards zero, this approach may no longer be effective. In this kind of situation, the monetary authorities may employ the use of quantitative easing to stimulate the economy through purchase of assets that mature in the long-term rather than short-term government bonds, therefore decreasing the interest rates away from the yield curve. Quantitative easing may be important in assisting to make sure that inflation does not go below the target, but it has risks including over-efficacy than originally intended against deflation, thereby resulting in higher inflation in the longer term from increased supply or sufficiently effective in the event that additional reserves are not lent out by banks. Based on the opinion of various economists as well as the IMF, quantitative easing used since the beginning of the financial crisis that was experienced between 2007 and 2008, has been critical in mitigating various adverse impacts of the crisis (Gindin and Panitch 326). Various economists and analysts argue that the US Federal Reserve employed some type of quantitative easing from 1930 all the way to 1940s in the fight against the Great Depression. Nevertheless, as the Federal Reserve employed quantitative easing initiatives to address the effects of 2007-08 financial crisis, various critics have considered its actions extraordinary. Further, charts have been created to point out that, as a fraction of GDP, the balance sheet after the financial crisis had not gone past the percentages that were attained between 1939 and 48 as of May 2013. The phrase â€Å"quantitative easing† was for the first time employed by the Bank of Japan when it was dealing with domestic