Timeline for Is QE the equivalent of printing money?
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| Jul 11, 2020 at 12:32 | comment | added | 1muflon1♦ | @dm63 the mechanism of QE is to: 1 increase available reserves. 2. Swap these reserves for ‘toxic’ assets to clean up balance sheets. 3. (And where QE can break) it is assumed that after the clean up banks will lend more. 4. Lending more expands money supply which brings interest rate down as interest rate is price for money and depends on money supply-demand interactions. In addition as in any market price and quantity are jointly determined. Arguing about timing in such situation is pointless - it’s chicken and egg scenario | |
| Jul 11, 2020 at 12:29 | comment | added | 1muflon1♦ | and such quantity of money. That analogy is of course just a shortcut for what is really happening but and it’s not completely correct but it has its utility and dismissing it as mere misnomer would not be correct either. | |
| Jul 11, 2020 at 12:27 | comment | added | 1muflon1♦ | the effects of QE to lay public in places where that ugly connotation does not exist or even to students. For example, typical macro 101 class will discuss monetary policy as if it would be done by printing money instead of changing interest rate or QE or host of other things even though modern central banks almost never resort to outright printing of the money. Still a great deal of analysis from just printing the money carries to interest rates and QE. Hence, even in advanced classes you will often hear teachers say this or that effect of QE/interest rate is equivalent to gov printing such | |
| Jul 11, 2020 at 12:27 | comment | added | dm63 | I agree QE was likely effective- I’m arguing that the mechanism is via reduction of interest rates rather than simple availability of reserves. | |
| Jul 11, 2020 at 12:24 | comment | added | 1muflon1♦ | @dm63 moreover, I think this whole issue of denouncing or proclaiming love for the analogy to money printing is misguided. The problem is that in some countries (I am looking at you Germany) printing money became a taboo and ugly word that one can’t even mention in polite conversation (yes I am exaggerating a little bit). So some economists are trying to distance QE from such analogy as far as possible. To the extent that the analogy makes people oppose QE when it’s necessary the analogy makes more harm then good. However, I would argue it’s still a good analogy when you even try to explain | |
| Jul 11, 2020 at 12:12 | comment | added | 1muflon1♦ | @dm63 yes there is some evidence that QE was effective (see link below). Also a side note QE can really only achieve all its macro-policy objectives by expanding money supply - if it doesn’t it’s failure - changing interest rate etc is dependent upon money supply as they depend on money market equilibrium. If you just argue the analogy is completely invalid because it empirically was not effective in some cases one could make a separate analogy of person going to printing press just to find that its unplugged and so it does not print. papers.ssrn.com/sol3/papers.cfm?abstract_id=2719021 | |
| Jul 11, 2020 at 11:58 | comment | added | dm63 | Is there any evidence that a QE associated increase in reserves actually induces banks to lend more? They already have massive excess reserves so in my view they are more constrained by the availability of creditworthy borrowers. | |
| Jul 11, 2020 at 8:59 | history | edited | Giskard | CC BY-SA 4.0 |
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| Jul 11, 2020 at 2:19 | history | edited | 1muflon1♦ | CC BY-SA 4.0 |
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| Jul 11, 2020 at 2:10 | history | edited | 1muflon1♦ | CC BY-SA 4.0 |
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| Jul 11, 2020 at 2:01 | history | edited | 1muflon1♦ | CC BY-SA 4.0 |
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| Jul 11, 2020 at 1:38 | history | edited | 1muflon1♦ | CC BY-SA 4.0 |
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| Jul 11, 2020 at 1:33 | history | edited | 1muflon1♦ | CC BY-SA 4.0 |
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| Jul 11, 2020 at 1:27 | history | answered | 1muflon1♦ | CC BY-SA 4.0 |