POLICY OF QUANTITATIVE EASING

Policy of Quantitative Easing

Policy of Quantitative Easing

The foundation for the gradual recovery in England's economy is being laid as environment for exports and business sentiments have improved. This development occurs against background of the cyclical rebound in global demand for IT-related goods as well as progress of structural adjustment, including improvement of corporate profitability. Structural adjustment of England's economy is but halfway complete, and many issues remain to be resolved. Persistent adjustment pressures have weighed heavily on self-sustaining recovery of domestic demand, which needs to be duly taken into account in conduct of monetary policy. (Shirakawa 2002 2)

We need to put issues facing England's economy, including structural adjustment, into the historical perspective that encompasses such issues as globalization and maturity of England's society and economy. Hence, today I would like to look back upon process of structural adjustment in England economy, and address current problems with the focus on three key concepts, "value added," "risk" and "sustainability."

I. The Path to Date of England Economy

A. High Economic Growth

I should start by reviewing high economic growth period between 1955 and 1970. During this 15-year period, genuine GDP nearly quadrupled with an annual development rate of almost 10 percent. Such high growth was only possible because of potential endowed to England's economy as well as favorable historical and geographical conditions at that time. (Alloway 2010 59)

England endowment included the relatively high technological capacity and the diligent work force. Moreover, it was eager to soak up expertise and heritage from abroad. England potential in this regard was evidenced by rapid industrialization after Meiji Restoration and subsequent economic development.

The period of high economic growth in England coincided with baby boomers' entrance into labor force. In fact, labor force increased from about 40 million in 1955 to about 50 million in 1970. Furthermore, population growth around that time followed the bell-shaped curve, which led to the relatively light burden being imposed by pension and other social security systems compared to other industrialized countries. (Bean 2009 19)

B. Shift to the Floating Exchange Rate System and Two Oil Shocks from 1970s through early 1980s, England economy experienced several major disturbances, including revaluation of yen triggered by "Nixon Shock" and subsequent shift to the floating exchange rate system, and two oil shocks. In particular, First Oil Shock combined with excess liquidity of time to produce rapid inflation.

In contrast, England managed to overcome Second Oil Shock smoothly, perhaps we can say most smoothly among industrialized countries. Behind this was not only the timely macroeconomic policy response, but also fact that England industry, having learned lesson of First Oil Shock, actively improved energy efficiency. As the result of these efforts, England economy became least dependent on oil among industrialized countries, and at same time succeeded in making energy-efficient technology the new source of value added. This can be cited as the classic example of England turning the problem to be overcome into the source of strength by using its technological ...