"Modeling Money" Coursework Example | Topics and Well Written Essays - 250 words

"Modeling Money" - Coursework Example Also, it is unlike liquidity preference model that assumes all economic factors are constant hence the consumer’s decision to hold cash is dependent on supply and demand. Second quantitative easing (QE2) was a strategic government policy aimed at reducing the mortgage rate and Treasury yields, as well as increase economic stimulus through the large-scale purchase of assets. It led to the decline of yields on longer-maturity Treasuries and other securities following the Federal announcement of its intention to increase its holding of longer-term securities (Christensen & Gillan, 2014). This may have been caused by expectations of a decline in risk premiums for longer-term debt securities. Also, the strategy may have had temporary effects of increasing market liquidity and lowering liquidity premiums for long-term investments. QE2 conforms to the liquidity preference theory that presume investors have a preference for premium for securities with longer maturity bearing the greater risk while they have a preference for holding cash since it involves minimal risk. Christensen, J. H. E. & Gillan, J. M. (July 2014). FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES: Does Quantitative Easing Affect Market Liquidity? Retrieved on 11th 2015 from