zero interest rate and qe

Mawuli Koffi Gilbert BossiadeOkuto SuzukiXinwei Xie

Chinmay NaikJoseph Kong

Natalia Guerrero Maldonado

Team 7

Zero Interest Rates and

QE are Ineffective Tools for Stimulating Economy.

Agenda● Introduction

● Zero Interest Rate Policy

● Quantitative Easing ● Arguments

● Conclusion

● Q&A

Zero Interest Rate

● Macroeconomic concept of stimulating growth while keeping interest rates close to zero

● It is used during recession

An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.

QE (Quantitative Easing)

Short Term

Foreign Investors Net Exports

Currency Devaluation

Argument 1: Short-term and Long-term Impact

Long Term

Argument 1: Short-term and Long-term Impact

Inflation Up Government Debt Benefit don't outlast QE program

Negative Interest Bank of Japan’s Attempt

Plan

・Weaken yen against USD・ Increase loans for businesses・ Foreign investments ・ Increase capital investment・ Stimulate the economy

Result

・ Stronger yen・ Stock price crash・ Slumping consumption・ Increased the investments in governments bonds・ Caused negative bond interest rates.

QE QENegative Interest (% Change)

Japan Consumer Price Index

2011 12 13 14 15 16

1.5

1.0

0.5

0.0

▲0.5

▲1.0

▲1.5

Argument 2: Increase Inequality

Widening the wealth gap

Fed’s low interest rates inflating stock market values, housing and gold.

Benefited richer individual borrowers/investors. However, the wealth gain did little to increase productive investment and consumption.

Fixed income receivers, savers without asset and creditors were penalized.

Argument 3: Increases debt

• Increased debt puts stress on the economy. Government will cut spending or increase tax to pay off debt which lowers the productivity of the economy.

• Lowers the country’s reputation if debt is defaulted or other countries lose confidence

Conclusion

• Short-term and long- term impact.

• Increase Inequality

• Increase Debt

• QE only stabilizes and not stimulates economy

• More controlled approach

• Monetary policy not only misallocated credit but also redistributed wealth

• Lowers productivity of economy

• Leads to higher interest rates and crowding out (long-term)