Tag Archives: Quantitative easing

QE3 and the FED: State-contingency and commitment emphasized

Today the Board of Governors of the Federal Reserve System published its decision to start a new round of quantitative easing and a revised announcement concerning the Federal Funds rate. Both legs of this decision have some interesting new aspects that show a central bank continually trying to expand the toolbox of monetary policy, and to be honest about its limitations when acting in an uncertain world. More specifically, the Fed re-introduces purchases of mortgage-backed securities (MBS) at a rate of $40 billion per month. No end date for the purchases is specified—at the contrary, it is emphasized that it will be extended if the economy does not pick up. … Continue reading

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Come on Baby, Let’s Do the Twist!

After yesterday’s press release by the Fed, many commentators started talking about “Operation Twist” even though no such thing is mentioned in the release. Accompanying the press release on the Federal Reserve site, was, however, a document containing the term in parenthesis. Some could immediately be confused or even scared by this. Would this be yet an addition to the endless series of acronyms that has emerged during the financial crisis? Troubled and Worthless Interest-bearing Securities Task-force? Luckily not. It just reflects a return to the old days. And “twist” actually means what it says: “twist.”  In 1961, the Kennedy administration and the Fed engaged in an operation of selling … Continue reading

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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 … Continue reading

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ECB, SMP, ETC. Who pays for what?

After the financial crisis hit in 2008, new acronyms have been appearing at a rapid pace around the globe. These mainly describe the various measures taken by the world’s central banks to offset the troubles caused by the crisis. Many took the form of liquidity provisions to aid “frozen” banking markets. The European Central Bank launched on May 14, 2010 a so-called Securities Market Programme (SMP), under which it – temporarily – allows itself to purchase Euro denominated government bonds. In its decision, the ECB motivated the move by “ . . . in view of the current exceptional circumstances in financial markets, characterised by severe tensions in certain market … Continue reading

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The Inflation Fallacy and central banking debates in the US

Among my favorite contemporary academic economists is N. Gregory Mankiw. I have always found his academic writings very lucid and to the point. I was once again reminded of this today, when I stumbled over some debates about abolishing the Federal Reserve System. Opponents of central banking, mostly self-proclaimed followers of the “Austrian school”, view central banks as monopoly powers that undermine free markets and are inherently inflationary – implying a government-supported devaluation of the population’s wealth. In the United States, these opponents are having golden days, as they can blame the Fed for having not only caused the financial crisis, but also for engaging in irresponsible quantitative easing that … Continue reading

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Dead economists can’t analyze the present

Of course they can’t. Yet, many pick up some dead economist and speculate what he or she would have thought about some current economic incident or policy. For example, even though a whole industry is still devoted to try figuring out what Keynes actually meant when he wrote The General Theory three quarters of a century ago, many discuss Keynes’ “advice” for policy in the present times of economic slump. While interesting from the perspective of the History of Economic Thought, it sometimes seem as a lot of wasted intellectual resources. Never mind about what Keynes would or would not have thought. Read him and learn, but don’t bestow him … Continue reading

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