Quantitative Easing: U.S. and China Similarities, Differences, and Lessons Learned

Following the dramatic chaos of the global financial crisis in the fall of 2008, most major economies all over the world were trying to recover using appropriate monetary policies. Countries like the United States, the United Kingdom, and the Eurozone began to adopt the expansionary monetary policy of quantitative easing to stimulate the economy. Central banks in those developed countries implemented QE policy to increase the money supply and to promote increased lending and liquidity. The emerging markets, especially in Asia, countries like China and India, were trying to recover their economies using different monetary policies including QE policy, following the steps of the developed countries. Those emerging markets not only suffered from the outcomes of the global financial crisis but also were adversely affected by the consequences of QE policy in those developed countries. This thesis proposes a comparative study of QE policy in the United States and in China, with different layers of analysis. By using the QE policy, the United States achieved green shoots of the economy, reaching a good economic performance and a substantially strong labor market. But the United States also had to address some subsidiary problems which QE policy brought. This thesis studies both the advantages and disadvantages of QE policy, and the importance of reducing the U.S. Fed's balance sheet. China is still implementing its version of QE policy, along with other monetary policies. Observing the success of QE policy in the United States, China can improve its QE policy from the experience learned from the United States and from Chinese own characteristics. It can be argued that if China were to note some of the conclusions reached in this thesis, it could potentially overcome the adverse effects caused by QE policy, and avoid some risks in the future related to monetary policy problems.