On The Transmission Mechanism Of The United States Quantitative Easing Monetary Policy

Since2008, the global financial crisis triggered by the U.S. subprimemortgage crisis, has played a huge impact on the global financialmarkets and the real economy. Many countries have taken a variety ofloose monetary policy to ease the pressure on financial markets andprevent the economy from recession. But when the policy rate hadalready been close to the zero lower bound, the financial markets stillhad no change and the traditional tools of monetary policy cannot beeffectively regulated. Under this circumstances, non-traditionalmonetary policy tools has emerged. Quantitative easing monetarypolicy is one of the most representative. In this crisis, the United States,the United Kingdom, the European Union and Japan have launchedtheir own quantitative easing monetary policy. The United States as theworld’s largest economy and the crisis of the hardest hit, the practice ofquantitative easing monetary policy has attracted worldwide attention.The working of this thesis involves in the introduction of quantitativeeasing monetary policy in the United States, the discussion of the policytransmission channels, the analysis of the conduction mechanism byevent study method and the test of the effectiveness of the U.S.quantitative easing monetary policy transmission through theestablishment of macroeconomic variables VAR model. Theconclusions are: First, the U.S. quantitative easing monetary policy is anew monetary policy, implemented with other non-traditional policytools in order to restore financial market environment damaged by thefinancial crisis and to promote sustained economic recovery. Second,the U.S. quantitative easing monetary policy transmission is meant toreduce long-term interest rates, after that, other economic variables,such as the broader economy would be influenced along with thetraditional monetary policy path. There are two mainstream channels to lower long-term interest rates, signalling effect and portfolio balanceeffect. The signalling effect mainly changes the expected futureshort-term interest rates path, while the portfolio balance effect mainlyaffects the term premium of long-term assets. Third, as for the size of thetwo effects, the signalling effect is very small, and the conduction ofpolicy on long-term interest rates was mainly through the portfoliobalance effect, which means the long-term interest rates decline wasmainly caused by long-term assets of the term premium has shrunk.Fourth, to som extent, the U.S. quantitative easing monetary policytransmission mechanism plays a certain role on macroeconomicvariables. The short-term effects on output growth rate is evident, whilelong-term effect is not obvious; The inflation maintained a good stablemomentum in the policy implementation process; The policy responsesof unemployment rate was not fully enough to achieve policyobjectives.