Here is quote of the day:
“being surprised about why QE doesn’t work when you’re trying to keep inflation expectations at 2% is like being surprised why people don’t have a party at a “free” bar if you make it clear you will remove alcohol from anyone who starts to feel drunk”.
This is Anthony Evans in City AM on Bank of England’s conduct of monetary policy. I think this is excellent – the Bank of England should call in Chuck Norris.
The Market Monetarist 
Britmouse
/ November 18, 2011I’m no apologist for the BOE, but I think that analogy is poor.
They have plainly allowed people to “have a party”. They have allowed CPI inflation go to 5% – way above target – and then started expanding the monetary base even further. It is generally very clear from their messaging that they set policy to target their forecast for CPI on a 2yr-ish horizon. They even allowed that forecast to drift too high earlier in 2011, without tightening to correct that. So again, they allowed the “party” to go on.
They are also very explicit that they only be reversing QE at a time in the future when they need to be tightening policy. Their comms are pretty good on that front.
Obviously the main problem is that CPI inflation is disconnected from the level of nominal demand. It is not the right target. But I think you can make a case that they are doing the right thing within their mandate.
The latest BOE inflation report is filled with references to how QE boosts nominal demand/spending. Several MPC members have written/commented on nominal income targeting in the past: Charlie Bean, Martin Weale, and Ben Broadbent at least. There is some hope.