The Economic Crisis Of Western Central Banks Essay

Because of the extreme severity of the Great Recession in 2008, western central banks have since applied a series of unconventional monetary policies besides normal ones. One of the characteristics of the unconventional policies is the intended near-to-zero interest rates, so those policies are also named Zero Interest Rate Policies (ZIRP). ZIRP are designed to help the financial market escape from the â€Å"liquidity trap†, a situation in which normal expansionary monetary policies fail to decrease interest rates below zero and thus become ineffective. Without a doubt, ZIRP are necessary tools for policymakers to intervene in the financial catastrophe of 2008; however, even though the recession has officially ended in June 2009, ZIRP are still in effect now. The application of ZIRP in the US demonstrates the necessity of the Federal Reserve (FED) for both monetary and fiscal policies in the regulatory system. However, ZIRP are in fact encouraging institutions and individuals to seek risks rather than avoid them, and the accumulating dangers as a result make ZIRP necessary to protect the financial market and the US Treasury from greater destruction. Therefore, people are trapped in a downward spiral, and the exit and economic recovery are postponed. The negative effects of ZIRP begin from an unequal distribution of new money inflows. In the US, quantitative easings (QEs) and Fed loans were first targeted at large financial institutions. According to a list of recipients ofShow MoreRelatedIMF : The Role Of International Institutions In Economy1045 Words   |  5 PagesInternational Institutions in Economy: - IMF The IMF, in its 2010 published report, expects an average global growth rate of three percent. This is due to countries such as China, India and Russia. 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