Recently in monetary policy Category

A common theme in much of the political rhetoric during both this election cycle and the last four years has been complaining about China as a "currency manipulator." The truth is that China has kept the value of its currency artificially low, thereby increasing the cost of U.S. exports to China and decreasing the costs of U.S. imports from China. Just like a coin has two sides, it is clear that changes in value of the Chinese currency simultaneously helps some groups while it hurts others. The novelty is that much of the media and political focus has been on the U.S. groups that get hurt by this policy, while stories about the benefits are neglected. And it is likely that the benefits outweigh the costs--possible by a landslide.

Time to repost the most recent Deseret News article from yesterday.

As many observers expected the U.S. Federal Reserve began a new round of quantitative easing this fall in an attempt to stimulate the economy by increasing the supply of available money.  As I discussed at the beginning of August, there is no fundamental difference between quantitative easing and the Fed's normal open market operations.  In the latter case the Fed buys U.S. Treasury securities on the bond market and in the former case it buys other non-traditional financial assets.  In both cases, however, it pays for these purchases by creating money.

What is Quantitative Easing?

Deseret News, August 6th

Speculation has been building of late that the U.S. Federal Reserve - or "The Fed" - will soon begin another round of quantitative easing.  The Fed has already engaged in two rounds, the first running from late 2008 to mid-2010 and now known as QE1, and again from late 2010 to mid-2011 known as QE2.  So this round, if it happens, would be QE3.  Quantitative easing is not the usual method for conducting monetary policy, but it's also not as different as most people think.

Authors

  • Richard W. Evans is an Assistant Professor of Economics at Brigham Young University

  • Jason DeBacker is an Assistant Professor of Economics at Middle Tennessee State University

  • Kerk L. Phillips is an Associate Professor of Economics at Brigham Young University