John Cochrane on QE2

I have previously mentioned John Cochrane on this blog as a good example of an economist who insists on using sound academic arguments in even the most heated debates. That this does not imply death by boredom, he shows in a recent commentary on quantitative easing at bloomberg.com : “Is QE2 a Savior, Inflator, or a Dud?: Business Class“.

Ben Bernanke said the following about QE2 in March 2011:

“Yields on 5- to 10-year nominal Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases”

John Cochrane comments:

“If yields go down, the Fed is successfully stimulating the economy with QE2. And if yields go up? Well, the Fed is successfully stimulating the economy with QE2”

which I think is funny (from a reading experience perspective, not economic), but on a more serious he note he states that

“Moreover, QE2 distracts us from the real microeconomic, tax, and regulatory barriers to growth. Unemployment isn’t high because the maturity structure of U.S. government debt is a bit too long”

The last point is definitely worth thinking about.

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