Main Performances of Bank of England

Main Performances of Bank of England

1. Special Liquidity Scheme : April 2008 to January 2012, an essential review of sterling market operations was undertook by Bank of England (BOE) and it also developed a new set of facilities to the banking system, in order to transform illiquid assets to tradable assets temporarily and provide continuing liquidity insurance (Sarah at el, 2012).

2. Interest Rate Policy: the Bank of England has responsible to manage the monetary policy to make monetary and financial stability. since the beginning of October 2008, the Bank of England cut its interest rate from 5.0% to 0.5% (Bank of England, 2009).

3. Quantitative Easing (QE) Policy : in March 2009, under the auspices of the Bank of England’s Monetary Policy Committee (MPC), central bank money purchased the 200 billion pounds purchase of public and private assets. The objective of QE policy is to improve money supply relating to large-scale asset purchases. (Bank of England, 2010).

4. Asset Purchase Facility (APF): since January 2009, the Bank of England operated an Asset Purchase Facility (APF) and thereby improve liquidity in the credit markets. After that, since March 2009, central bank managed the £200 billion of Quantitative Easing funds; the Asset Purchase Facility (APF) continues to operate its corporate facilities. (Bank of England, 2010).

Improvements of Macroeconomic Outcomes

IS Curve

The purpose of Special Liquidity Scheme and Quantitative Easing (QE) Policy are that the central bank buys government bonds, which can restore lending markets and active financial markets. The tradable assets had been increased, which can encourage firms to lend and invest. So the IS curve shift to the right and the real output will higher. Meanwhile interest rate will be higher as well.

The IS curve is related to saving and investment, which influence equilibrium in the goods market. Investment (I) is an endogenous variable, which are affected by interest rate. If investment should be increased, the interest rate should decrease. Therefore Bank of England also needs to decrease the interest rate. Meanwhile, government expenditure, investment and consumption will increase, which lead a higher output. In addition, there will be the multiplier process in Y=C+I+G+(X-M) this model.

Therefore, massive amounts of money were poured into the UK economy to promote money liquidity, which can shift IS curve to the right way, aiming to increasing in the output (Y).