Monetary Stimulus Policies


This is Tony back! Today I would like to talk about the global financial crisis. You might be wondering why I am talking about such a topic which has been already discussed a lot. But don’t worry about it, as my post won’t let you be bored!

As you know, the economic downturn originating from global financial crisis has not yet been cleared in EU. It indeed looks still serious and threatening in an undisputable way, as shown from the fact that the world’s strongest and most powerful economies, the US and Japan, are adopting monetary stimulus policies.

United States announced its third quantitative easing, while ECB (European Central Bank) is planning a limitless purchase of government bonds, especially MBS (Mortgage backed Securities) for an indefinite period. Similar sentiment is also shared in Japan, as BOJ (Bank of Japan) enlarged its asset purchase up to 10 trillion Yen.

Of course, each nation should have rational reasons for their pursuing. In case of European Union, the ECB has taken its role as a lender of the last resort. The US government is implementing policies to raise employment rate, considering the chronicle unemployment cycle. Japan, being aware of its currency ‘Yen’ in a deep fatigue, is under a lot of pressure, and intends to release more of Yen.


You might wonder how effective those above mentioned policies are in dealing with making the global economy better. Think back to why the Euro zone crisis erupted. The biggest reason for the crisis was the instability of the European system as well as the US political system causing dangers in financial market. In most cases, especially when we take a look at United States’ first quantitative easing, the measure was indeed a great help for stabilizing the economy. However, monetary stimulus policies were usually implemented as ‘follow-up’ measures, once the problems had already taken place. After all, they did not do much thing to help the economy.


Yes, every policy has both merits and demerits. Monetary stimulus policies are not an exception. Even though countries implement the policy on the basis of their own reasonable grounds, after considerations, they should be careful about their policy implementations once again. Financial experts emphasize that policies might bring intended effects along with unexpected side effects known as negative externalities. This is what we have to be precise and careful about.


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