{"id":4996,"date":"2015-01-28T21:11:16","date_gmt":"2015-01-29T02:11:16","guid":{"rendered":"http:\/\/olduvai.ca\/?p=4996"},"modified":"2015-01-28T21:11:16","modified_gmt":"2015-01-29T02:11:16","slug":"the-lemmings-of-qe","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=4996","title":{"rendered":"The Lemmings of QE"},"content":{"rendered":"

The Lemmings of QE<\/a><\/h3>\n

NEW HAVEN \u2013 Predictably, the European Central Bank has joined the world\u2019s other major monetary authorities in the greatest experiment in the history of central banking. By now, the pattern is all too familiar. First, central banks take the conventional policy rate down to the dreaded \u201czero bound.\u201d Facing continued economic weakness, but having run out of conventional tools, they then embrace the unconventional approach of quantitative easing (QE).<\/p>\n

The theory behind this strategy is simple: Unable to cut the\u00a0price<\/em>\u00a0of credit further, central banks shift their focus to expanding its\u00a0quantity<\/em>. The implicit argument is that this move from price to quantity adjustments is the functional equivalent of additional monetary-policy easing. Thus, even at the zero bound of nominal interest rates, it is argued, central banks still have weapons in their arsenal.<\/p>\n

But are those weapons up to the task? For the ECB and the Bank of Japan (BOJ), both of which are facing formidable downside risks to their economies and aggregate price levels, this is hardly an idle question. For the United States, where the ultimate consequences of QE remain to be seen, the answer is just as consequential.<\/p>\n

QE\u2019s impact hinges on the \u201cthree Ts\u201d of monetary policy:\u00a0transmission<\/em>\u00a0(the channels by which monetary policy affects the real economy);\u00a0traction<\/em>\u00a0(the responsiveness of economies to policy actions); and\u00a0time consistency<\/em>\u00a0(the unwavering credibility of the authorities\u2019 promise to reach specified targets like full employment and price stability). Notwithstanding financial markets\u2019 celebration of QE, not to mention the US Federal Reserve\u2019s hearty self-congratulation, an analysis based on the three Ts should give the ECB pause.<\/p>\n


\nRead more at http:\/\/www.project-syndicate.org\/commentary\/ecb-quantitative-easing-experiment-by-stephen-s–roach-2015-01#KrJmjfe2tJPl5ycs.99<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The Lemmings of QE NEW HAVEN \u2013 Predictably, the European Central Bank has joined the world\u2019s other major monetary authorities in the greatest experiment in the history of central banking. By now, the pattern is all too familiar. First, central banks take the conventional policy rate down to the dreaded \u201czero bound.\u201d Facing continued economic […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[233,284,303,305,661,3017],"class_list":["post-4996","post","type-post","status-publish","format-standard","hentry","category-economics","tag-ecb","tag-european-union","tag-fed","tag-federal-reserve","tag-qe","tag-quatitative-easing"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/4996","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4996"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/4996\/revisions"}],"predecessor-version":[{"id":4997,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/4996\/revisions\/4997"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4996"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4996"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4996"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}