In the past few years, Central Banks have been buying bonds to Increase money supply Reduce bond yields The aim of quantitative easing is to avoid deflationary pressure and increase economic growth. Ending quantitative easing will mean The Central Bank stop buying any more bonds. The process will then be reversed and, in time, the …
When interest rates were cut to 0.5% in March 2009, few would have expected them to remain at 0.5 until the present time. Yet, we have seen an unprecedented period of zero interest rates. There is much speculation about: When interest rates will rise? How much will interest rates to increase to? What will be …
Securitisation involves changing loans into tradeable bonds. Securitisation can increase the liquidity of banks and enable banks to engage in more lending than previously. Securitisation was a factor in the credit crunch because it enabled banks to lend more than usual. When there was a shortage of credit in the banking system, banks became over-exposed …
In a previous post, we saw how bank lending in the UK fell during the credit crunch, contributing to the length and depth of the recession. Because of this the Bank of England and Government have sought to try and increase bank lending – in order to help stimulate economic growth. Fall in bank lending. …
Internal Devaluation – where a country seeks to regain competitiveness through lowering wage costs and increasing productivity and not reducing the value of the exchange rate. A devaluation of the currency is a decision to allow a currency, in a fixed or semi-fixed exchange rate, to decrease in value. Devaluing the currency means that the …
Readers Question: 1. Does state capitalism as practised in China pose a fundamental challenge to the Western model of liberal-democratic capitalism? No, I don’t think so. From a political perspective, no matter how economic successful China might be, there will never be any enthusiasm to replicate China’s one party political system. In fact, it is …
Abenomics refers to the economic policy of the current Japanese prime minister Shinzō Abe. The aim of the policy is to stimulate strong economic recovery and help the Japanese economy to escape a cycle of deflation, and low growth. Can Japan break the cycle of low growth? The range of policies include: Expansionary monetary policy …
Economists generally agree that a high inflation rate has various economic costs and therefore, we should use economic policy to keep inflation low. Since the mid 1980s, governments have increasingly set strict inflation targets, e.g. ECB inflation of less than 2%. The Bank of England targeting inflation of 2% +/-1. However, some economists argue that …