Quantitative easing is very imprecise. Knowing whether or not it is proving successful is tricky: its effectiveness depends on faith as much as pure economic reason. Earlier in the year, for example, it was widely thought that QE's success would be reflected in faster money supply growth. Yet there has been little evidence of any acceleration. If it is working, another explanation has to be found.
For me, there are three possibilities. First, QE works merely by boosting people's expectations. Given that interest rates are more or less at zero, it is important for the Bank to demonstrate that all is not lost on the monetary front: QE seems to fit the bill even if no one understands how it works (central bankers, like God, work in mysterious ways). Its introduction may have helped to lift asset prices, consistent with a new wave of economic optimism.
So we - or rather the Bank of England - are spending billions of pounds on a policy but we and they cannot tell if it is working or how it is supposed to work. Not very comforting ...
1 comment:
The economy is such a lumbering beast that it takes months for any small input to show on the output side! Tweak an economic lever and see where we are at in six months... that's the game they're playing.
Worse still is these bankers and economists are too London centric and don't understand the rest of the UK may still be f*&ked when London resumes its normal boom times.
Hopefully the Xmas spending show see us back into growth and bring back consumer confidence to keep it going.
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