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The Impact of Quantitative Easing
on the World Economy (Part II) 量化寬鬆對全球經濟的影響 (下)
Lawrence J. Lau, 劉遵義 Ralph and Claire Landau Professor of Economics, The Chinese Univ. of Hong Kong
and Kwoh-Ting Li Professor in Economic Development, Emeritus, Stanford University
Hong Kong Economic Summit 2014
Hong Kong, 9th December 2013
Tel: (852)3550-7070; Fax: (852)2104-6938 Email: [email protected]; WebPages: www.igef.cuhk.edu.hk/ljl
*All opinions expressed herein are the author’s own and do not necessarily reflect the views of any of the organisations with which the author is affiliated.
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The Impact of Quantitative Easing on the World Economy 量化寬鬆影響世界經濟 The excess liquidity released through the QEs and the
excessively low interest rates in the U.S. have led to a massive exodus of short-term capital from the U.S. to the rest of the World seeking higher yields.
This has led to the appreciation of most currencies relative to the U.S. Dollar, a decline in the interest rates in the foreign financial markets, and a rise in asset prices (stock prices) worldwide.
In some of the economies, such as Brazil, India, Indonesia and Turkey, this has caused economic boomlets.
3
Exchange Rate Indexes of Selected Economies (11/25/2008=100)
60
70
80
90
100
110
120
130
11/2
5/20
0812
/25/
2008
1/25
/200
92/
25/2
009
3/25
/200
94/
25/2
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5/25
/200
96/
25/2
009
7/25
/200
98/
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009
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/200
910
/25/
2009
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/25/
2009
1/25
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02/
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010
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/201
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010
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/201
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25/2
010
7/25
/201
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010
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010
/25/
2010
11/2
5/20
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/25/
2010
1/25
/201
12/
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011
3/25
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14/
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011
5/25
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16/
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011
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110
/25/
2011
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/25/
2011
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/201
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25/2
012
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24/
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012
5/25
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012
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012
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/25/
2012
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/25/
2012
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/201
32/
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013
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/201
34/
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013
5/25
/201
36/
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013
7/25
/201
38/
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013
9/25
/201
310
/25/
2013
11/2
5/20
13
Exchange Rate Indexes of Selected Economies (11/25/2008=100)
RMB Korean WonNew Taiwan Dollar Indonesian RupiahMalaysian Ringgit Philippines PesoSingapore Dollar Thai BahtVietnamese Dong
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The Exchange Rate Revaluation/Devaluation of Selected Economies (2008/11/25-2010/11/03)
Currency 11/25/2008 11/3/2010 Revaluation/Devaluationagainst US$
RMB 6.8245 6.6746 2.20%Euro 0.76748 0.71357 7.02%Japanese Yen 95.532 81.387 14.81%Australian Dollar 1.54135 1.00368 34.88%Korean Won 1501.72 1110.23 26.07%New Taiwan Dollar 33.349 30.425 8.77%Indonesian Rupiah 12209 8931 26.85%Malaysian Ringgit 3.6207 3.0853 14.79%Philippines Peso 49.409 42.475 14.03%Singapore Dollar 1.5108 1.2889 14.69%Thai Baht 35.205 29.787 15.39%Vietnamese Dong 16957 19408 -14.45%Indian Rupee 49.894 44.38 11.05%
The Exchange Rate Revaluation/Devaluation during QE111/25/2008-11/3/2010
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The Exchange Rate Revaluation/Devaluation of Selected Economies (2008/11/25-2013/11/29)
Currency 11/25/2008 11/29/2013 Revaluation/Devaluationagainst US$
RMB 6.8245 6.0949 10.69%Euro 0.76748 0.73507 4.22%Japanese Yen 95.532 102.505 -7.30%Australian Dollar 1.54135 1.096 28.89%Korean Won 1501.72 1057.8 29.56%New Taiwan Dollar 33.349 29.606 11.22%Indonesian Rupiah 12209 11909 2.46%Malaysian Ringgit 3.6207 3.2245 10.94%Philippines Peso 49.409 43.671 11.61%Singapore Dollar 1.5108 1.2549 16.94%Thai Baht 35.205 32.089 8.85%Vietnamese Dong 16957 21198 -25.01%Indian Rupee 49.894 62.384 -25.03%
The Exchange Rate Revaluation/Devaluation during QE1-311/25/2008-11/29/2013
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Interest Rates of Selected Economies
0
0.5
1
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5
2008
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Perc
ent
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Interest Rates of Seleced Economies
China
Euro Area
Japan
Australia
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Interest Rates of Selected Economies
0
1
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Perc
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er an
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Interest Rates of Selected Economies
China Korea
Taiwan Indonesia
Malaysia Philippines
Singapore Thailand
Vietnam
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Stock Price Indexes of Selected Economies (11/25/2008=100)
70
80
90
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110
120
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11/2
5/20
0812
/25/
2008
1/25
/200
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25/2
009
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/200
94/
25/2
009
5/25
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96/
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009
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009
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/200
910
/25/
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0912
/25/
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1/25
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02/
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010
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/201
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7/25
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010
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/201
010
/25/
2010
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/25/
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1/25
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12/
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011
3/25
/201
14/
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011
5/25
/201
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011
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/201
18/
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011
9/25
/201
110
/25/
2011
11/2
5/20
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/25/
2011
1/25
/201
22/
25/2
012
3/25
/201
24/
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012
5/25
/201
26/
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012
7/25
/201
28/
25/2
012
9/25
/201
210
/25/
2012
11/2
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1212
/25/
2012
1/25
/201
32/
25/2
013
3/25
/201
34/
25/2
013
5/25
/201
36/
25/2
013
7/25
/201
38/
25/2
013
9/25
/201
310
/25/
2013
11/2
5/20
13
Stock Price Indexes of Selected Economies (11/25/2008=100)
China
Euro Zone
Japan
Australia
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Stock Price Indexes of Selected Economies (11/25/2008=100)
6080
100120140160180200220240260280300320340360380400420440460
11/2
5/20
0812
/25/
2008
1/25
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92/
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009
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94/
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/25/
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/25/
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/25/
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/201
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/25/
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/25/
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/201
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/201
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5/25
/201
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7/25
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28/
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/201
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/25/
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/25/
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1/25
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32/
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013
3/25
/201
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/201
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013
7/25
/201
38/
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013
9/25
/201
310
/25/
2013
11/2
5/20
13
Stock Price Indexes of Selected Economies (11/25/2008=100)
China KoreaTaiwan IndonesiaMalaysia PhilippinesSingapore ThailandVietnam
10
Counter-Quantitative Easing by the Euro Zone and Japan 日本與歐元區反量化寬鬆 Japan, which saw its exchange rate rose to 75 Yen/US$
from 100 Yen/US$ as a result of the QEs, greatly hurting its exports, decided to launch its own “Counter-QE”, which was effective in driving the exchange rate of the Japanese Yen back to the 100 Yen/US$ level.
The Bank of Japan could have achieved the same result by intervening directly in the foreign exchange market to stabilise the Japanese Yen/U.S. Dollar exchange rate, but there was probably opposition to its direct intervention from the U.S. Government on ideological grounds.
The Euro did not appreciate too much relative to the US$ except during QE1 because of the sovereign debt and other economic problems within the Euro Zone itself.
11
Exchange Rate Indexes of the Euro and the Japanese Yen (11/25/2008=100)
75
80
85
90
95
100
105
110
11/2
5/20
0812
/25/
2008
1/25
/200
92/
25/2
009
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/200
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009
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96/
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/200
910
/25/
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/25/
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1/25
/201
02/
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010
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/201
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/201
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/201
08/
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9/25
/201
010
/25/
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/25/
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/201
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3/25
/201
14/
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011
5/25
/201
16/
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/201
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25/2
011
9/25
/201
110
/25/
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11/2
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1112
/25/
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1/25
/201
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012
3/25
/201
24/
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012
5/25
/201
26/
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012
7/25
/201
28/
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012
9/25
/201
210
/25/
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/25/
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1/25
/201
32/
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013
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/201
34/
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013
5/25
/201
36/
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013
7/25
/201
38/
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013
9/25
/201
310
/25/
2013
11/2
5/20
13
Exchange Rate Indexes of the Euro and the Japanese Yen (11/25/2008=100)
Euro Japanese Yen
12
To Taper or Not to Taper? 遞減還是不遞減？ “Quantitative Easing” has not been particularly effective in
stimulating new investment, increasing real GDP or lowering unemployment in the U.S.
That is why I argued previously that there would not be QE3 because it would not have been effective in improving the real economy in the U.S.
However, there was QE3 and it was, as expected, not effective in stimulating the U.S. real economy. Thus, tapering and ending QE3 can only be a matter of time.
In May, when the future leadership of the Federal Reserve Board was still uncertain, Chairman Ben Bernanke wanted the public to be prepared for a possible change in the policy.
13
To Taper or Not to Taper? 遞減還是不遞減？ By September, it became clear that Vice-Chairman Janet
Yellen would become his successor. But it was not the right time to begin tapering because of the uncertain economic environment created by Congressional bickering on the budget and the debt ceiling.
There is still a small but finite non-zero probability that tapering may begin after the December meeting of the U.S. Federal Open Market Committee. However, the more prudent thing for the Federal Reserve Board to do is probably to wait until the budget and debt ceiling matters are settled in early 2014 before beginning tapering, just in case.
14
What Could Have Been Done? 美聯儲還有什麼沒有做？ Instead of purchasing U.S. Treasury and agency securities during the QEs,
the U.S. Federal Reserve Board could have offered to purchase say US$600 billion worth of new medium and long-term bonds issued by the fifty individual states, approximately in proportion to their populations, the proceeds of which are to be used solely for the construction of new basic infrastructure or the major maintenance of existing basic infrastructure within the respective states.
This could have created the aggregate demand necessary to make good use of the existing excess capacity in the construction and the construction material sectors as well as their idle workers in the U.S. It would have boosted both real GDP and employment across the board.
Such an offer should be welcome by the governors of almost all states that suffer from sluggish economic recovery, high employment rates and budget deficits.
Moreover, the purchase of such bonds would not require the approval of the U.S. Congress.
15
Concluding Remarks 結語 QE3 has not had much effect on the real U.S. economy and hence will also
not have much impact on the real U.S. economy when it is finally ended. However, it did lead to a rise in the prices of assets, especially financial assets, and a decline in the long-term interest rates, including mortgage rates, and hence a slight recovery of the housing market.
The failure of “Quantitative Easing” to stimulate the real economy in the U.S. clearly demonstrated the limits of monetary policy acting alone.
The QEs collectively, through the excess liquidity released to the rest of the World, have also enabled the U.S. Dollar to devalue relative to most other currencies in the World, helping U.S. exports. They have also led to temporarily lower interest rates and higher asset prices elsewhere. With the tapering and ending of QE3, these developments are likely to be reversed.
In any case, the end of QE will only come gradually, through tapering, even though the effects of the ending of QE3 may be felt sooner because of changes in expectations.
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