zero interest rate and qe
TRANSCRIPT
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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.
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Agenda● Introduction
● Zero Interest Rate Policy
● Quantitative Easing ● Arguments
● Conclusion
● Q&A
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Zero Interest Rate
● Macroeconomic concept of stimulating growth while keeping interest rates close to zero
● It is used during recession
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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)
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Short Term
Foreign Investors Net Exports
Currency Devaluation
Argument 1: Short-term and Long-term Impact
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Long Term
Argument 1: Short-term and Long-term Impact
Inflation Up Government Debt Benefit don't outlast QE program
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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.
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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
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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.
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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
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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)
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