tag:blogger.com,1999:blog-8764541874043694159.post4226461916755730430..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: QE is fiscal policyFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-8764541874043694159.post-35437986389342683642014-08-05T12:29:31.303+01:002014-08-05T12:29:31.303+01:00Once I in the beginning stated I clicked on on rou...Once I in the beginning stated I clicked on on round the -Inform me when new articles are additional- checkbox now each time a remark is extra I have four e-mails while using identical review. Maybe there's any method that you should eliminate me from that support? Thanks! <a href="http://www.net-security-training.co.uk/course-information/course-list/cissp-training/" rel="nofollow">net-security-training.co.uk/course-information/course-list/cissp-training/</a>Anonymoushttps://www.blogger.com/profile/03633379522909941526noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69588001346889806742014-07-25T19:14:06.862+01:002014-07-25T19:14:06.862+01:00Thanks for the 1930s link FrancesThanks for the 1930s link FrancesAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-80582712175574315032014-07-25T14:47:15.078+01:002014-07-25T14:47:15.078+01:00I see, although it is a bit hard to quantify the Q...I see, although it is a bit hard to quantify the QE effect because speculation and announcement might have lowered bond yields beforehand.<br /><br />A central bank doubling up to limit the losses on its own holdings would be mad - Nick Leesonesque - but you may be right, such is the "Harlot's Progress" evolution of central bankers these days. I hope J&P have some impact.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-40150345565189989522014-07-25T13:33:55.733+01:002014-07-25T13:33:55.733+01:00Tim,
I'm not being inconsistent. The STATED P...Tim,<br /><br />I'm not being inconsistent. The STATED PURPOSE of QE is to depress yields. But evidence shows that yields in fact rise during QE programmes. <br /><br />You know very well that I can't state what the price is. It is not "set" in that sense. But I don't think you've understood the point.<br /><br />The central bank's presence in the market is a price signal. The risk to governments from deficit spending is a buyer's strike, which can't happen when the central bank stands as buyer of last resort. So when the quantity of government debt the central bank is prepared to buy is unlimited ("whatever it takes"), the price of government debt is effectively supported by an unlimited central bank guarantee even if the central bank never actually buys anything. This is how OMT has depressed yields on Italian and Spanish debt, and why J&P argue that OMT amounts to monetary financing of government even though no purchases have been made.<br /><br />But the same guarantee holds even if the quantity is officially limited. After all, what CB is going to allow the price of its holdings of govt debt to crash? Therefore even though the central bank is officially only buying a given quantity, there is an implied commitment to intervene further if necessary to support the price. The "floor" is the price at which the CB would intervene to limit losses on its own holdings. It's a stop-loss, if you like. <br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-57348760076261562252014-07-25T13:14:01.018+01:002014-07-25T13:14:01.018+01:00Frances, despite now saying that "QE is suppo...Frances, despite now saying that "QE is supposed to depress yields", you wrote above: "Secondly, QE does not make government debt more expensive - it makes the cost of borrowing more expensive, which is not the same thing. QE does indeed raise yields to some extent"<br /><br />I disagree about QE setting a floor under yields, at least officially. In general the central bank sets a quantity, with the implication that if that quantity does not lower yields enough for the government's liking, tough! If you think that "The central bank stands ready to buy government debt at a price that it sets", tell me what that price is for the UK or US.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-58716931106544450362014-07-25T12:22:08.475+01:002014-07-25T12:22:08.475+01:00Ralph Musgrave
Your last comment has been deleted...Ralph Musgrave<br /><br />Your last comment has been deleted because it did not comply with the comments policy on this site. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63918432328073157812014-07-25T12:18:57.482+01:002014-07-25T12:18:57.482+01:00This comment has been removed by a blog administrator.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69177500225906849552014-07-25T10:02:48.167+01:002014-07-25T10:02:48.167+01:00Oh, and here's the St. Louis Fed on the 1930s ...Oh, and here's the St. Louis Fed on the 1930s quantitative easing (sorry, links aren't live, you will have to cut and paste into your browser)<br /><br />http://research.stlouisfed.org/publications/mt/20100701/mtpub.pdfFrances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-15995764606304848072014-07-25T10:01:09.470+01:002014-07-25T10:01:09.470+01:00IOER is too small to be regarded as bank recapital...IOER is too small to be regarded as bank recapitalisation, really. What HAS helped recapitalise banks is low interest rates coupled with regulatory tolerance of wide spreads. But even so, most banks have had to increase capital ratios by selling assets and, more recently, through rights issues. <br /><br />ONRRP targets non-banks not banks. Although it is a reserve drain, it would make little or no difference to bank lending - I've explained elsewhere why reserve changes don't make any difference to banks' ability to lend. It is possible that allowing non-banks to deposit funds at the Fed for a few basis points in interest might reduce non-bank lending to the real economy, though I think the effect would be marginal at most. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-44913159658559150282014-07-25T09:54:32.514+01:002014-07-25T09:54:32.514+01:00I don't think you've read my post properly...I don't think you've read my post properly. I explained in the post why sometimes populations and politicians support ideas that are unhelpful or even harmful. They absolutely have the right to do so, but that doesn't make the ideas THEMSELVES a good thing. The job of informed minorities is to try to change the views of the majority so they make better decisions. <br /><br />Regarding the second paragraph - my comment referred to the fact that you apparently want an unelected technocratic committee with its own agenda to tell politicians how much money they can spend. That means that politicians would no longer be accountable to the electorate for the fiscal budget, only for its distribution. When money was too tight or too loose - which under your scheme it would inevitably be because of the inadequacy of information that we have discussed before, plus the technocrats' own priors - politicians can blame the economic consequences on the unelected technocrats, thereby escaping responsibility. To me this is unacceptable. <br /><br />Oh, and if you think technocrats' own priors don't influence their decisions, try reading the FOMC minutes from 2004 through 2008, as I did. It's a revelation. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-81632143343424251812014-07-25T09:41:20.541+01:002014-07-25T09:41:20.541+01:00Just because I have not expressed an opinion about...Just because I have not expressed an opinion about the undemocratic nature of the MPC and FPC before does not mean that it doesn't concern me. <br /><br />There is not a single Minister in government who is an expert in his field. The experts - who are civil servants - are directed by and report to their elected masters. The Bank of England is the ONLY EXCEPTION to that, and it is all because of the charade of central bank independence.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-65575881905398578012014-07-25T09:34:58.029+01:002014-07-25T09:34:58.029+01:00...was not aware that the US had undertaken QE dur......was not aware that the US had undertaken QE during the Great Depression. Do you have any links to articles describing exactly what they did? I'd be very grateful.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-7344510763711437252014-07-25T09:31:41.713+01:002014-07-25T09:31:41.713+01:00You see, I believe the IOER was brought in to help...You see, I believe the IOER was brought in to help re-capitalise the banks (once the authorities realised reserves weren't going to be deployed) and as an additional layer of control once we reach the far-end and banks come out of special measures. As it happens the Fed has also brought in the reverse repo facility, which is a more efficient way of re-directing bank lending away from the real economy if it starts to get too heated. Bank lending is now growing at a faster than 10% annualised rate, whilst QE is still in existence - hence the need (finally) for such dampening strategies.<br /><br />I alsoAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-85636208631292558172014-07-25T05:47:14.523+01:002014-07-25T05:47:14.523+01:00Frances, In your first para just above, you critic...Frances, In your first para just above, you criticise the idea of having “majority of the population and . . . . a majority of politicians” take economic decisions. That contradicts your other claims above to the effect that that lot, rather than specialist committees should take economic decisions.<br /><br />Re your second paragraph, that’s just nonsense. You claim that I (and PM) want to have specialist committees “delegate” decisions to “elected politicians”. Quite the opposite: we want to have government, i.e. “elected politicians” delegate decisions to specialist committees, which to repeat, is a practice widely accepted as being desirable.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-76523006019209610672014-07-25T05:42:31.702+01:002014-07-25T05:42:31.702+01:00Frances, I do like your claim that “I think the l...Frances, I do like your claim that “I think the lack of democratic accountability of the MPC and the FPC is a considerable problem.” Was that made up on the spur of the moment in order to support the point you’re trying to make here, or have you long had reservations about the undemocratic nature of the BoE MPC? I ask because I’ve never seen you express such reservations. But perhaps I’m wrong: perhaps you REALLY HAVE expressed such reservations. So can you direct me earlier writings of yours where YOU HAVE expressed those reservations?<br /><br />Second, the idea that there are “considerable problems” in the undemocratic nature of the BoE MPC is too vague a charge to be of any use. OBVIOUSLY that committee is undemocratic, and equally obviously that’s a problem. But the alternative is to have politicians, 95% of whom couldn’t pass an elementary economics exam, take complex economic decisions. Anyone who thinks that’s not problematic is living in cloud cuckoo land. Moreover, you yourself point below to the serious problems involved in those wonderful democratically elected politicians taking economics decisions: as you rightly point out, they’ve backed austerity.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-45005043929485288262014-07-24T23:45:31.886+01:002014-07-24T23:45:31.886+01:00I sort of already have....
http://www.pieria.co....I sort of already have.... <br /><br />http://www.pieria.co.uk/articles/inflation_is_always_and_everywhere_a_political_phenomenon <br />http://coppolacomment.blogspot.co.uk/2014/05/the-myth-of-omnipotent-central-bank.html<br /><br />However, I could do a more technical dismemberment, perhaps.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-47474552407150321242014-07-24T23:43:55.147+01:002014-07-24T23:43:55.147+01:00This comment has been removed by the author.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35632837810022114502014-07-24T23:30:46.101+01:002014-07-24T23:30:46.101+01:00you should do a comprehensive takedown of 'mar...you should do a comprehensive takedown of 'market monetarism' for your next post, including a critique of the inflation expectations theory...Philippenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-10179908706955271642014-07-24T23:17:09.057+01:002014-07-24T23:17:09.057+01:00Committing to keeping interest rates low until rec...Committing to keeping interest rates low until recovery is well established does help in my view, especially if there is a high level of private debt. This commitment supports agg demand, encourages deleveraging and provides some financial stability for households and corporates, enabling them to plan future investment. <br /><br />But the inflation arguments are typical monetarist mumbo jumbo. I dispute the equivalence between size of monetary base and inflation. And I disagree that the central bank adopting a higher inflation target necessarily influences inflation expectations. Inflation targets are a bit of a joke anyway, since for the last few years central banks have been "allowing" inflation well above target in the name of recovery and are now "allowing" inflation quite a bit below target. And no-one seriously thinks the expansion of the monetary base is temporary: excess reserves will be with us for the foreseeable future and the Fed has just announced a new policy regime (IOER/ONRRP) to work with them. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-79989020673961593192014-07-24T22:55:15.312+01:002014-07-24T22:55:15.312+01:00Frances,
what do you think of the argument (mainl...Frances,<br /><br />what do you think of the argument (mainly put forward by monetarists) that monetary policy would be more effective if the central bank managed expectations in better way, either by promising to allow higher inflation than normal in the future (by keeping interest rates low for longer than normal), or by promising that an expansion of the monetary base will be permanent (effectively the same thing)..?Philippenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-58746927639560210102014-07-24T22:33:37.278+01:002014-07-24T22:33:37.278+01:00Fiscal austerity is also accepted by a large major...Fiscal austerity is also accepted by a large majority of the population and by a large majority of politicians as being a good idea. But that doesn't make it a good idea. <br /><br />Your proposal though is not delegation from elected politicians to committees of experts - it is the reverse. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-31839516217832436372014-07-24T22:31:38.880+01:002014-07-24T22:31:38.880+01:00As it happens, I do think the lack of democratic a...As it happens, I do think the lack of democratic accountability of the MPC and the FPC is a considerable problem. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-84645389908287212992014-07-24T22:29:16.975+01:002014-07-24T22:29:16.975+01:00Hi Tim,
No I haven't got my yields and prices...Hi Tim,<br /><br />No I haven't got my yields and prices mixed up. QE is supposed to depress yields. The difference between "original" Japanese QE and Western QE is that Japanese QE was intended to depress yields at the short end of the curve, whereas Western QE was intended to depress yields at longer maturities while IOER propped up the short end - which flattens the curve. However, QE in practice seems actually to have raised yields on government debt - that is the point made by the first commentor.<br /><br />I absolutely can say that QE sets a floor under the price of government debt. The central bank stands ready to buy government debt at a price that it sets. The presence of the central bank in the market makes a buyer's strike impossible, since it is effectively the buyer of last resort, and as it is by far the largest player in the market, other agents will have to bid higher than the central bank's price if they wish to buy. If that isn't setting a price floor I would like to know what is. <br /><br />The SSRN link at the top of this post is ungated - download is free (at least it was to me and I don't have any special privileges as far as I know). Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-76117502122113238952014-07-24T15:30:15.546+01:002014-07-24T15:30:15.546+01:00You might want to revise that last paragraph Franc...You might want to revise that last paragraph Frances - you seem to have your yields and prices mixed up! Anyway, I don't think that you can say that QE puts a floor under the price of government debt. As its name suggest, QE has been defined in quantitative terms, either of the addition to the stock of reserves or the amount of debt purchased.<br /><br />Much though I dislike QE, or at least its maintenance so long after the financial crisis, I would dispute whether it is illegal, as long as governments do not buy government debt "direct" from finance ministries, but I would agree that this is a bit of a small fig leaf. Nevertheless, I would like to read the Johnston and Pugh paper myself to see how they make their argument, if you are aware of an ungated copy.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-85065896589047805802014-07-24T14:17:09.333+01:002014-07-24T14:17:09.333+01:00Delegating technical decisions to committees of ex...Delegating technical decisions to committees of experts is accepted by a large majority of the population and by a large majority of politicians as being a good idea. Thus delegating decisions on stimulus to the BoE MPC or the equivalent committee under PM’s system IS DEMOCRATIC. But just to formalise the latter point I suppose we ought to have a refendum on the point or perhaps a vote in the House of Commons on whether the BoE MPC should have any powers. But I suspect if you suggested such a vote to MPs or suggested a referendum, all and sundry would tell you to stop wasting their time.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.com