Unit 4 Macro: Evaluating 3 Years of Quantitative Easing
It is now over three years since the Monetary Policy Committee of the Bank of England cut policy interest rates to 0.5% and subsequently introduced a policy of quantitative easing (or an asset purchase programme) now worth £325 billion.
These have been difficult times for the Bank. The average rate of CPI inflation since 2008 has averaged 3.5% - well above the official target - and the Bank has faced pressures from many sectors of the economy not least the millions of pensioners and other net savers whose incomes have been dragged lower by this period of ultra-low interest rates.
Has conventional monetary policy lost its effectiveness in the aftermath of the global financial crisis? Bank lending continues to fall, consumer and business confidence is fragile, many people have seen interest rates on unsecured credit rise not fall, and the depreciation of sterling seems to have had a muted expansionary effect on demand, profits and jobs.
QE itself may have become ineffective. Adam Posen, a member of the BoE’s MPC stated in a recent speech that
“quantitative easing may be ineffective under the present circumstances. This could be because money put into the hands of risk-averse investors and banks simply sits there, on their balance sheets.’ instead of being lent out to businesses and individuals who need to borrow to finance investment.
Remember too that monetary policy does not operate in isolation. The effects of lower interest rates and the QE programme might well have been negated by other events in the world economy, for example falling demand and confidence and a return to recession in the euro area or the depressive effects of high oil and gas prices on real incomes and spending.
Channel 4 News: Three Years of QE
Reforms and New Powers for the Bank of England?
BBC news March 2012: Will more mortgage lenders raise rates?
3 Years of Record Low Interest Rates
BBC news: What is Quantitative Easing?
August 2012 - Bank of England releases a report on the distributional consequences of QE
See also: Richest 5% gain most from BofE quantitative easing policy (BBC news)
More From the Digital Store
Topic-by-topic, editable PowerPoints for the entire Year 1 (AS) teaching content of AQA A Level Economics.
Key topic editable worksheets for the Year 1 teaching content of AQA A Level Economics.
This pack contains a full copy of the bumper collection of teaching & learning resources (print and digital) provided to delegates attending our recent Teaching the New Edexcel A Level Economics ...
Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.