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Masters Thesis
The Effect of Quantitative Easing to the U.S. Economy: Under TVP-VAR Approach
This paper analyses the dynamic macroeconomic effect of the 4 round Quantitative Easing (QE) adopted by the Federal Reserve (Fed) that started in November 2008. The paper use Time Varying Parameter Vector AutoRegression (TVP-VAR) method to study the relationship among the monetary base, industrial production and inflation rate. The results show that monetary base has distinct pulling effect on industrial production, but not on inflation rate; yet, industrial production shock has no obvious effect on monetary base increasing, but effect on inflation rate is decreasing in one year lag; inflation shock has negative effect on monetary base and positive effect on industrial production, both these two effect are stable over the sample period. Accordingly, my results imply that the U.S. QE experiment was successful in stimulating economic activity, it does not increase the inflation rate in short run, but the long run effect on inflation is not determined. By giving interpretation of these results, this paper proposes that while the QE has helped support the economy, it still carries some risks. Keywords: quantitative easing, macroeconomics, TVP-VAR method
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