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In my evidence to @LordsEconCom, I argued that QE has fiscal spillovers that are poorly theorised & understood.
Reliance on QE alone created a massive failure of fiscal-monetary governance in 2010.
Good to see @guardian editorial warn against repeating that mistake post-pandemia
Reliance on QE alone created a massive failure of fiscal-monetary governance in 2010.
Good to see @guardian editorial warn against repeating that mistake post-pandemia
Bank of England's Internal Evaluation Office noted that the Bank should understand better the monetary-fiscal linkages created by QE.
I would go further, and argue that this gap affects:
a) transparency of QE
b) effectiveness of QE
c) design of fiscal measures
d) unwind of QE
I would go further, and argue that this gap affects:
a) transparency of QE
b) effectiveness of QE
c) design of fiscal measures
d) unwind of QE
a) Is QE transparent?
NO, if transparency = communicating clearly and effectively reasoning behind quantitative targets
two reasons: no theoretical tools to arrive at precise number, and no explicit consideration of 'monetary-fiscal linkages'
why: ideology
NO, if transparency = communicating clearly and effectively reasoning behind quantitative targets
two reasons: no theoretical tools to arrive at precise number, and no explicit consideration of 'monetary-fiscal linkages'
why: ideology
b) has QE reached its limits?
QE is necessary but not sufficient.
Structurally necessary because government bonds have a macrofinancial role
Insufficient: 5 QE rounds yet UK still bad at financing productive activities, nor is it transformational of monetary-fiscal relations
QE is necessary but not sufficient.
Structurally necessary because government bonds have a macrofinancial role
Insufficient: 5 QE rounds yet UK still bad at financing productive activities, nor is it transformational of monetary-fiscal relations
c) Biggest risk of QE:
that the macrogovernance failure of 2010 is again repeated, when government embraced austerity because the Bank of England seemed to be in control of macroeconomic conditions, and promised to single-handedly bring us back to some general equilibrium.
that the macrogovernance failure of 2010 is again repeated, when government embraced austerity because the Bank of England seemed to be in control of macroeconomic conditions, and promised to single-handedly bring us back to some general equilibrium.
d) when should the Bank of England unwind?
The risk is that it unwinds too fast, too soon & puts undue pressure on fiscal stance.
My recommendation (and IEO): the MPC should ask the Bank for substantive research on fiscal-monetary spillovers of unwind b4 proceeding.
The risk is that it unwinds too fast, too soon & puts undue pressure on fiscal stance.
My recommendation (and IEO): the MPC should ask the Bank for substantive research on fiscal-monetary spillovers of unwind b4 proceeding.
the existing MPC position - that the Bank will cap reinvestments of QE portfolio (thus shrinking its holdings) when policy rate hits 1.5% is completely, and I stress, completely random.
