Here is the Daily Telegraph’s Ambrose Evans-Pritchard:
“Central banks have the means to prevent a 1930s outcome, even with rates at zero, if willing to deploy Fisher-Friedman monetary stimulus with conviction, buying assets from non-banks and targeting nominal GDP growth of 5pc. But policy defeatism is in the air, and Austro-liquidationists are winning the popular debate.”
Ambrose continue to be the most outspooken British commentator in favour of NGDP targeting – Market Monetarist style.
See also my earlier post on Ambrose’s views.
David Beckworth
/ January 3, 2012Lars, I really like the fact that he emphasized purchasing assets from the non-bank public.
Lars Christensen
/ January 3, 2012David, I completely agree. In fact I am increasingly convinced at the extreme focus on conducting monetary policy via the banking sector both in Europe and the US is undermining the efforts to ease monetary conditions. That is also why I in recent posts have argued that it might be perferable to use the FX market for QE.
Benjamin Cole
/ January 3, 2012A year ago, no one knew about MM. Now we are in the fight—time to win the fight.
W. Peden
/ January 3, 2012Re: buying from the non-bank public, I’m not sure that the FX market is necessary. Pension and insurance funds have plenty of capacity to buy and sell the kinds of assets that central banks are authorised to hold.
I think it’s helpful to think of asset prices as an intermediate stage in monetary policy. Some people talk of exchanging base money for financial assets as if it’s just an inert asset swap, but it changes the quantity of interest-bearing assets (assuming the central bank isn’t doing something stupid like paying interest on reserves) and thereby the price. Since the non-CB demand for financial assets is unchanged, it becomes easier for agents to create new financial assets (corporate bonds, loans and government bonds for that matter). Hence the noticeable effect of monetary policy actions on corporate equity e.g. stock market prices.
One of the problems is that, while the UK should be well-disposed to NGDP targeting, the UK is one of the last fortresses of Keynesianism and while Keynes’s name still has a mystical quality, attatching Friedman’s name to anything is a sure way of making it unacceptable and disreputable. We are, after all, the country where this happened-
http://en.wikipedia.org/wiki/Adam_Smith_College#Students.27_Association
Lars Christensen
/ January 3, 2012W. Peden, you are right that QE can easily be done through pension etc., but the reason why I increasingly think the FX market is a good place to conduct QE is that it is very transparent.
Take the Bank of England. In my view it could announce a path for the pound against a basket of currencies (or a basket of commodities) every month in the same way as it today it today announces rate (and QE) decisions. It could announce that it would keep the pound within a 5% band and that it would announce a new FX part every month. By doing it in this way the market would probably take care of most of the adjustment based market expectations of the outlook for NGDP.
This is a bit more transparent version of the Swiss model. (or a Singapore model) and I am pretty sure it would work. If the Fed or the ECB did introduced such a policy it would probably give some political problems (in terms of “competitive devaluation”), but I am pretty sure the BoE could get away with it. The policy does not have to be permanent and could be given up again once a “normal” state in the economy has returned.