Published:
Ever since the financial crisis of 2008, many large central banks have used quantitative easing in order to help stimulate their respective economies. Quantitative easing is the act of buying financial assets from lower level banks, thus increasing the price of the assets and increasing reserves in the economy. This has remained a common practice in central banks, and these banks have even increased the rates of easing since this year. However, economists are uncertain of how much easing has actually helped the global economy, and are wondering if it is time for a change in monetary policy practices.
In times of economic slowdowns or crises, central banks will often adapt an expansionary monetary policy and lower interest rates by buying short-term government bonds. When interest rates start to bottom out but further economic action is needed, quantitative easing is then adopted to boost stock market activity and lower rates further. Now central banks are facing a unique problem: stock market activity has reached record highs and interest rates have hit record lows. And in spite of the enormity of these rates, the global economy has not necessarily been changed for the better by these practices.
Because of this lack of growth in the global economy, some nations are considering tightening their economic markets and raising interest rates. In the case of countries like the United States, this would be the first time such an act will have occurred in over ten years. The goal of raising interest rates later in the year is to balance the economic outlook for the country, adopting an opposite approach to the expansionary monetary policy put in constant use for many years now. However, not all countries are adopting this point of view. In fact, the aggressive rates of quantitative easing and slashing of interest rates are expected to be at their highest since 2009. Major countries such as China, India, and Russia are expected to continue their quantitative easing practices. The majority of major nations are expected to follow suit; however, other countries like Mexico, Nigeria, and Ghana are also expected to start tightening their economies and adapt to a contractionary monetary policy stance.
Economists are saying that tighter economic policies will be beneficial to multiple nations as well as the entire global economy; however, it does not appear as though all nations are on board with this stance. Nevertheless, some major nations are adopting this approach, and it is yet to be seen how changes in monetary policies will affect the global economy.
File under
Share this article
