The Study On The Effect And The Exit Mechanism Of American Quantitative Easing Monetary Policy

Quantitative easing is a monetary policy, which central banks take open market operations such as buying long-term bonds, increase the base money supply, artificially create specified amount of money, in order to encourage spending and borrowing, when interest rates is reduced to zero or close to zero. "Quantitative easing" mainly contains two meanings, which "quantitative" refers to create a specified amount of money, while "easing" refers to reduce the commercial bank funding pressures. Since the 1990 s, there were many countries and organizations such as the United States, Japan, Britain, the European Union and so on, has implemented quantitative easing monetary policy, which played a key role in economic recovery after the outbreak of American subprime crisis. As the U.S. economy and the U.S. dollar plays a decisive role in the global economy and in international currency system, studying the implementation, transmission and exit mechanism of U.S. quantitative easing monetary policy has an important significance in theory and in practice.This paper take the implementation of American quantitative easing monetary policy as the center of research basing on the summary of previous studies. Firstly, the paper study the necessity of its implementation. In the U.S., due to the limits which are the total amount of debt and lacking new economic growth point, the implementation of quantitative easing has the intrinsic necessity home, while implementing quantitative easing is its dominant strategy in tripartite game(the U.S., the European Union and Japan, the developing countries) abroad. Secondly, the paper analyzes its domestic and international transmission mechanism in theory. It stimulate the economy mainly by making a commitment to maintain zero interest rate, the expansion effect of the central bank balance sheet, portfolio effect home, while its mainly through the income channel, interest rate channel, exchange rate channel which is similar to traditional monetary policy abroad. Thirdly, the paper study its domestic effect through M2, interest rate, aggregate demand, unemployment rate and economic growth. Fourthly, the paper study the exiting ways and steps of quantitative easing monetary policy basing on the existing literature. Fed exits quantitative easing basing on the decline of the unemployment rate and the rise of CPI. The exiting steps includes cutting the assets purchases, raising the federal funds rate, selling assets gradually in proper order. At last, the paper analyze the overflow effect and the impact of American exiting of QE on the new normal Chinese economy, then make some related policy recommendations. The implementation and exiting of American quantitative easing monetary policy has important implications in dealing with the relationship between government and market, dredging interest rate transmission mechanism, internationalising the renminbi, and reforming the economy by setting FTA.