The role of quantitative easing in distorting equity markets leading Research Paper

The role of quantitative easing in distorting equity markets leading to a distortion in the labor market - Research Paper Example The governments in these countries have been actively taking policy measures, such as quantitative easing and easy monetary policies to boost up the economies and increase level of economic performance. Table of Contents Table of Contents 3 Central Bank Tools Discussion 5 Recent Recession and its effects 8 Equity Markets Bubble in Banking Sector 9 Compare QEs in US, EU and Japan 10 Effects on the Labour Markets 11 Conclusion 12 Works cited 13 Name of the Student Name of the Professor Course Number Date The role of quantitative easing in distorting equity markets leading to a distortion in the labour market Recessionary background The financial crisis that had hit the America and the European Union in the 2008 has come to an end in the 2009, according to economists. However, the effects of crisis have been lingering around for the last four years. The financial crisis had ruptured the financial system and has consequently affected the entire global economy. As the financial drought ha s neared its end in the year 2009, think tanks consisting of economist and politicians from around the world have been investigating the root cause of global crisis. The actual reason has yet remained a debatable discussion. However, near consensus has been reached on one factor that has led to the financial breakdown; high default rate on the subprime mortgages. In the Europe, high liquidity had led to high level of risky transactions in the real estate market. Loans were provided at low rates of interest and without accepting fair amounts of security. Some of the large financial institutions that were affected the most in this scenario were, Lehman Brothers, Bear Sterns and Northern Rock (Weisberg, â€Å"What Caused the Economic Crisis?†). This financial down turn had caused economic activities to slowdown in the Europe and the United States. This has been the primary reason behind the global recession in the first decade of the twenty first century. The effect of the finan cial crisis has been an elongated one. The extent upto which the effect of recession in the European Union is being experienced is a longer period of time than the actual period of time for which the financial break down had occurred in these countries (Arcega, â€Å"European Recession Now Longer than 2008 Financial Crisis†). The countries in Europe are still striving to recover from the after effects of the crisis. Out of the seventeen nations that follow the common currency, Euro, nine countries are in the state of recession in 2013. While in general recession lasts for four quarters in a financial year, this recession is lasting for more than six quarters. Central Bank Tools Discussion In general, the central banks raise lending activity indirectly by cutting the rate of interest. Lower interest rate encourages investors to make higher levels of investment. People are also induced to spend more. But when rates of interest come close to zero, the central bank cannot further lower the interest rate (â€Å"What Is Quantitative Easing?†). It has the last option of directly injecting higher amount of money in the economy. The central bank can do this by purchasing assets (usually in the form of government bonds). This raises the level of money supply in the economy. The financial crisis