The Surplus Of Quantitative Easing Monetary Policy Research

In2008, the American Subprime Mortgage Crisis turned to global financial crisis quickly.With the traditional monetary policies’ failure, United States and other developed countriesstarted to use quantitative easing monetary policy(QE) and hoped to stabilize theconfidence of market and stimulate economy recovery.On the basis of theoretical analysis on QE’s spillover effect, making United States as aspecific object, this thesis is trying to figure out its QE’s spillover effect to other countryes,especially China. Firstly, it introduces QE1and QE2, and analyzes the QE’s transmissionmechanism. Secondly, it analyzes the2rounds QE’s spillover effect on internationaleconomy and mainly focuses on its influence on China’s economy and policy. At the end,the author also gives the forecast on the possibilities of QE3. There are several conclusionsas follows.1) QE’s transmission mechanism. QE policies, combined with zero interest rate policy,the traditional and non-traditional monetary policies work together on domestic economy,and then its spillover effect spreads through international trade, capital flow, expectation,and other channels, then affects the foreign countries’ economy and the independence of itsmonetary and exchange policies.2) Theoretical analysis on QE’s spillover effect. Based on Mundell-Fleming model, thespillover effect is asymmetric, because it is highly related to the country’s exchange systemand capital supervision system.3) QE’s implementation effect. The Fed was trying to increase market liquidity andstimulate macro economy recovery by changing central bank’s balance sheet andcommercial bank credit. Because of its powerful spillover effect, the liquidity did not all goto the real economy, a part of it was trapped in the financial system, and another partoutflowed to other countries, mainly to emerging economies. So QE’s effect is better in theshort time then in the long run, and the harm outweighs benefit.4) US QE’s spillover effect on China’s economy. Firstly, it will give an impact on China’simport and export. Secondly, on capital flow, it can be proved through VAR model that thechange on interest spread between SHIBOR and LIBOR is short term capital flows’Granger reason. The increase of interest spread brings more short-term capital inflowswhich could cause asset price bubble. Thirdly, China’s holding of US dollar asset value would be shrinked in the long run, because of default risk, interest risk and exchange risk.Fourthly, QE’s effect on China’s monetary policy. If China uses easing policy, it willstrengthen China’s policy effect. If China uses tightening policy, it will weaken its effect.At last, to decrease US monetary policies’ spillover effect, the paper suggests that a perfectinternational capital flow monitoring system should be established, foreign exchangereserve assets should be diversified, and accelerate the process of RMB internationalization.5) Since QE’s effect is not so good in the long run, the paper supposes that it is notpossible for the QE3in short time.