Quantitative Easing for the People

CAMBRIDGE The European Central Bank is moving, hesitantly but ineluctably, toward quantitative easing. The threat of deflation and the ineffectiveness of its previous measures leaves it no choice.

Thus, if anything, emerging market leaders should have complained about European austerity, not about US quantitative easing. Fed Chairman Ben Bernanke s talk of tapering quantitative easing might have triggered the current bout of instability but emerging markets underlying vulnerability was made in Europe.

In some cases, currencies move in the same direction as monetary policy for example, when the yen dropped in response to the Bank of Japan s 2013 quantitative easing. But in other cases the opposite happens, for example when the euro and the pound both strengthened after their central banks began quantitative easing.

Such a debt conversion program would offer five benefits. For starters, unlike the ECB s current quantitative easing, it would involve no debt monetization.

The problem is that this kind of incrementalism will not work. When the problem is deflation, quantitative easing will help only by transforming expectations.

But the effects of so called quantitative easing also depend on expectations. If giving businesses extra cash makes them more confident, they will spend more.

BRUSSELS Stubbornly low inflation has the European Central Bank worried. But its response essentially just more quantitative easing could backfire, exacerbating imbalances and generating serious financial instability.

Having lowered their policy rates to near zero, they have engaged in increasingly extravagant measures such as quantitative easing and forward guidance. Given the fog cast over real economic activity by the financial crisis, it is difficult to offer a definitive assessment of just how well or badly those measures have worked.

At home, all that is left is unconventional monetary policy. The Bank of England recently injected an additional 75 billion into the economy via so called quantitative easing.

Still others would make the case that monetary action would have been enough, if only the Fed had committed to a target for annual inflation that was higher than 2 and vowed to do as much quantitative easing as necessary to reach that goal. This simple promise were it to be made credible would have been far more effective than much larger amounts of quantitative easing.

PARIS In Northern Europe, especially Germany, the European Central Bank s decision to embark on quantitative easing (QE) has triggered an avalanche of indictments. Many are unfounded or even baseless.

To the extent that unconventional monetary policy including various forms of quantitative easing, as well as pronouncements about prolonging low interest rates serves these roles, it might be justified.

Last year, the eurozone was on the verge of a double dip recession. When it recently fell into technical deflation, the European Central Bank finally pulled the trigger on aggressive easing and launched a combination of quantitative easing (including sovereign bond purchases) and negative policy rates.

In Japan, quantitative easing was the first arrow of Abenomics, Prime Minister Shinzo Abe s reform program. Its launch has sharply weakened the yen and is now leading to rising trade surpluses.

NEW YORK The United States Federal Reserve s decision to undertake a third round of quantitative easing, or QE3, has raised three important questions. Will QE3 jump start America s anemic economic growth?

The most recent trend indicates increasing use of technical measures (classified under chapter 8 above), as well as quantitative measures associated with technical measures, and decreasing use of all other measures.

NEW YORK Who would have thought that six years after the global financial crisis, most advanced economies would still be swimming in an alphabet soup ZIRP, QE, CE, FG, NDR, and U FX Int of unconventional monetary policies? No central bank had considered any of these measures (zero interest rate policy, quantitative easing, credit easing, forward guidance, negative deposit rate, and unlimited foreign exchange intervention, respectively) before 2008.

Some Parties included quantitative estimates of mitigation impact for all measures for 2000, 2005, 2010 and 2020.

As long as the tailwinds of global quantitative easing, cheap oil, and further institutional inflows keep blowing, equities could continue to rally. But at some point, a real market correction will arrive.

It follows that the best thing the ECB could do to encourage fiscal consolidation and structural reform is to banish the specter of deflation. Only full bore quantitative easing can do that.

These rhetorical devices must not overshadow careful analysis of the various options. There has been surprisingly little comparative analysis of the effects of quantitative easing (QE) in Japan, the US, and Britain.

NEW YORK Monetary policy has become increasingly unconventional in the last six years, with central banks implementing zero interest rate policies, quantitative easing, credit easing, forward guidance, and unlimited exchange rate intervention. But now we have come to the most unconventional policy tool of them all negative nominal interest rates.

Similarly, the risk of deflation worldwide has been contained via exotic and unconventional monetary policies near zero interest rates, quantitative easing, credit easing, and forward guidance. And the risk of a war between Israel and Iran has been reduced by the interim agreement on Iran s nuclear program concluded last November.

Opponents of quantitative easing worry that it augurs inflation a peculiar position, given the European economy s current slack. They worry that securities purchases will sow the seeds of another financial bubble and bust.

Most obviously, the European Central Bank announced an ambitious program of asset purchases quantitative easing in late January. That prospect rapidly drove down the euro s exchange rate, enhancing the international competitiveness of European goods.

First, central banks take the conventional policy rate down to the dreaded zero bound. Facing continued economic weakness, but having run out of conventional tools, they then embrace the unconventional approach of quantitative easing (QE).

Securities prices are extraordinarily high, considering the backdrop of flaccid economic growth. Bond prices have soared on the back of quantitative easing by the Bank of Japan, the Federal Reserve, and the European Central Bank.

Both countries face formidable resistance to reform from formidable vested interests and lobby groups. Both also face major price distortions, owing to quantitative easing by monetary policymakers, which has led to negative real interest rates.

Hard to be Easing

She's easing down, boys.

Japan has slipped into recession and the United States, despite relatively strong performance in the latter part of 2014, has raised concerns worldwide with its exit from quantitative easing. Meanwhile, emerging economies have continued to perform well.

NEW YORK Most observers regard unconventional monetary policies such as quantitative easing (QE) as necessary to jump start growth in today s anemic economies. But questions about the effectiveness and risks of QE have begun to multiply as well.

Adding 400 billion would increase the pool substantially. Together with asset backed securities, covered bonds, and corporate bonds, 1 trillion of assets the threshold widely thought to make quantitative easing by the ECB credible would be available for purchase.

Because policymakers are out of options, there remains little doubt that the European Central Bank will pursue quantitative easing, whether Germany likes it or not. European officials will welcome a weaker euro, which will improve competitiveness, at least modestly.

Since 2009, quantitative easing (QE) by the US Federal Reserve has resulted in record low interest rates around the world. But, while the resulting surge in capital flows to emerging markets stimulated economic growth, it also inflated asset bubbles.

Central banks in China, South Korea, Taiwan, Singapore, and Thailand, fearful of losing competitiveness relative to Japan, are easing their own monetary policies or will soon ease more. The European Central Bank and the central banks of Switzerland, Sweden, Norway, and a few Central European countries are likely to embrace quantitative easing or use other unconventional policies to prevent their currencies from appreciating.

The developed countries should adopt concrete measures to help developing countries, inter alia, by providing additional development funds and easing conditions for debt relief.

BRUSSELS With inflation in the eurozone stubbornly remaining on a downward trajectory, pressure on the European Central Bank to do something to prevent outright deflation is growing. This something is usually understood to be massive asset purchases, or quantitative easing (QE).

Recall that the Fed began its third round of quantitative easing (QE3) by purchasing 40 billion of securities a month, before boosting the volume to 85 billion. Monthly sales of 60 billion by China s government would lie squarely in the middle.

In an era of zero interest rates and quantitative easing, macroeconomic policy has become unhinged from a tough post crisis reality. Untested medicine is being used to treat the wrong ailment and the chronically ill patient continues to be neglected.

In the United States, the Federal Reserve has sent bond markets into a tizzy by signaling that quantitative easing (QE) might be coming to an end. The proposed exit seems to reflect a truce accord among the Fed s hawks and doves.

That is why quantitative easing should be run in conjunction with a eurozone wide investment program designed to modernize the creaking infrastructure of eastern and southern Europe. Capital spending by governments, unlike current spending, can be self financing through user charges.

Quantitative easing, combined with public investment, would impart the growth impetus that the eurozone sorely needs to bring about a gradual reduction in its aggregate debt burden. But it is almost certain that neither policy, much less both, will be implemented.

Though developed countries authorities intervened strongly in the aftermath of the global financial crisis in 2008, launching significant fiscal and monetary stimulus measures, many of their structural shortcomings remain unresolved. Abenomics in Japan has yet to yield results, and the European Central Bank is following in the footsteps of America and Japan, pursuing quantitative easing in an effort to shore up demand.