An Analysis of the 2008 Global Financial Crisis: Was Quantitative Easing Appropriate?

Naape, Baneng (2019): An Analysis of the 2008 Global Financial Crisis: Was Quantitative Easing Appropriate?

Abstract

This essay aims to investigate the effects of Quantitative Easing (QE) on selected macroeconomic and financial market variables. By means of a desktop approach, we find that QE1 had a strong and beneficial impact on the real economy through the banking sector while QE2 and QE3 had small positive or neutral effects on banks and life Insurers. Although QE did not close the gap left by the 2008 global financial crisis, it helped reduce the rate at which the crisis was rising and proved to be an effective crisis management tool. QE boosts the economy in the short run but weakens the economy in the long run. Thus, Central banks should only consider QE when the economy is in crisis and not as a substitution for structural reforms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Quantitative Easing, Global Financial Crisis, economic downturn, Advanced Market Economies, Lower Interest Bound
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

References

Bhattarai, S. & Chatterjee, A. (2015). Effects of US Quantitative Easing on Emerging Market Economies: University of Illinois

Bank of England pamphlet. (2011). Quantitative easing explained. Available at www.bankofengland.co.uk

Bhattarai, S. & Chatterjee, A. 2015. Effects of US Quantitative Easing on Emerging Market Economies. Federal Reserve Bank of Dallas: Globalization and Monetary Policy Institute, Working Paper No. 255

Chodorow-ReicH, G. (2014). Effects of Unconventional Monetary Policy on Financial Institutions. Brooking papers on economic activity: Harvard University Department of finance Quarterly bulletin. Quantitative Easing and Its Effects on Economic Markets, April - June 2011

Lavigne, R. Sarker, S. & Vasishtha, G. (2014). Spill over Effects of Quantitative Easing on Emerging-Market Economies: International economic analysis https://www.statbureau.org/en/japan/inflation-tables. Accessed on: 13 March 2017

International Trade Administration Commission of South Africa. (2014). South Africa trade report: Trade as a driver of structural change for sustainable development. Available at: www.itac.org.za/upload/ITAC%20AR%20-%2020%20August%20-%20Email.pdf

Krishnamurthy, A. & Vissing-jorgensen, A. 2011. The effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy. North-western university

Liber8 newsletter. 2011. Quantitative Easing Explained: An informative and accessible economic essay with a classroom application. Available at: www.stlouisfed.org/education

South African Reserve Bank: Financial stability review. (2008 – 2016). Available at http://www.reservebank.co.za

Vahey, J. & Oppenheimer, L. 2014. Last Call: The End of Quantitative Easing. Available: http://www.thirdway.org/report/last-call-the-end-of-quantitative-easing.

World Economic Outlook. (2017). An update of the key WOE projections. Washington DC

World Trade Organisation. (2009-2015). World trade statistical review, available at www.wto.org/statistics

Oosthuizen, H. (2016). Policy Implications for South Africa as a result of Quantitative Easing and Monetary Policy Normalisation. Nedbank and Old mutual budget speech competition