Quantitative easing Flashcards
What is an example of the emergency liquidity provision used in the UK during the banking crisis?
RBS bailout
Why did banking regulation change after the crisis?
To shock proof the sector
What were some macroeconomic consequences of the banking crisis?
- Largest GDP reversal since great depression
- UK and Us experienced weak recoveries
- Made people on average poorer than usual
What are two conventional policy limits
- Nominal interest rates typically not negative
- Zero lower bound for nominal interest rates
What is a definition of the QE process?
Central bank creates electronic accounts credited with new cash balance, and uses these accounts to purchase assets from financial institutions
QE process of buying assets has the effect of:
Increasing private sector cash balances
When, and who by, was QE first recommended as a policy?
February 1999 by Nakahara
Why is QE more risky?
It entails balance sheet expansion
Does the Bank’s ability to make asset purchases require treasury approval?
Yes
What are some distinctive features of QE?
- Asset purchases operate to a quantiative target
- There is a reinvestment decision when assets mature
- Corporate bonds and securities purchased as well as govt bonds
QE is usually used as an option to boost private expenditure when interest rates:
Are at the lower bounds
What is the shadow banking system?
The means by which large firms obtain finance without using banks
What is the definition of the current long term interest rate?
Average interest rate over 10 years after borrowing begins
If interest rates are expected to stay at low levels for an extended period, Consumption and investment are likely to:
Rise
If the BoE adopts QE, you could say it is no longer committed to:
Price stability
