About the role of Quantitative Easing in helping the UK out of the Essay

About the role of Quantitative Easing in helping the UK out of the slum - Essay Example The conditions following the financial collapse were by no means normal, however, and the Bank of England had to innovate. As conventional monetary tools became virtually ineffectual, the BOE started pursuing Quantitative Easing (QE) monetary regime. Joyce et al. (2011) defines QE as a government’s policy of expanding the central banks balance sheet with an objective of increasing the level of central bank’s reserves. The main purpose of the BOE in introducing the program was to expand the balance sheet. QE policy includes purchasing of assets from the financial market with an objective of imparting additional liquidity. Secondly, it seeks to affect the term structure of interest rates by influencing markets expectations on future interest rates. BOE’s decision to open asset purchase window marked the transition of BOE policies from a conventional regime to an unconventional QE regime. In early 2009, the Bank of England (BoE) introduced a large-scale asset purchase (LSAP) programme called quantitative easing (QE). When the intensity of global financial crisis was high following the collapse of Lehman Brothers in 2008, most governments and central banks around the globe introduced a variety of ways meant at stabilising financial conditions and supporting aggregate demand (Joyce et al., 2011). The main focus of BOE was to purchase large amounts of UK government bonds (gilts) from non-financial institutions. The BOE finished the LSAP program in early 2010, but it restarted it in October 2011. The main intention of the BOE in engaging in QE program was to boost liquidity in UK financial markets and help in restoring stability in credit and bond markets. The BOE was responding to continued deterioration in world economic growth, excessive market volatility and persistent problems in international credit markets. In response, the BOE revised the official bank rate to th e downside and reduced them by 0.5% to 1.5% in January 2009, prior to the introduction of