Explain the difference between quantitative easing(QE) and credit Essay

Explain the difference between quantitative easing(QE) and credit easing(CE) and discuss the theoretical channels through which they may affect financial markets - Essay Example One of the policies that were adapted in the wake of the financial crisis was the quantitative easing (QE) and the credit easing (CE). According to Ishi et al. (2009), in simple definition terms, Quantitative easing (QE) entails the direct and unsterilized purchases securities owned by the government which is usually done by the central bank. The main aim is under normal circumstances to lessen the benchmark yield curve and enhance economic activity. Most of the times, it is used when the monetary transmission is impeded seriously and the policy interest rate are falling towards near zero. It can be used to ensure that the inflation does not go below the specified target. On the other hand, Credit easing (CE) is the direct or indirect provision of credit by the central bank to specified borrowers possibly called for by the breakdown of credit marketers enhancing credit can be mainly seen as the intention of meeting macroeconomics objectives. The key aim is to reduce credit spreads in specific sectors that are usually of high macro finance importance. These purchases raise the monetary base in a way that is related to a purchase of government securities. Many Central banks have adopted the QE and CE policies. A look at such a bank is the federal bank of the United States. It has employed both the QE and CE policies which are discussed below respectively. The financial crisis and its repercussions that have been experienced recently have proven to be a great task for the Federal Reserve. Towards the end of 2008, in reaction to the economic and financial conditions that were hastily weakening, the Federal Open Market Committee (FOMC) pushed the federal funds rate target near to zero. As the conditions deteriorated, the Fed turned to policies that were nontraditional to strengthen financial market conditions. Such policies comprised the purchases of large-scale asset which were in the range of hundreds of billions of dollars for