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Judging the impact of QE
5th November 2009
The BBC carries this interesting video discussion with De Anne Julius about the impact of the Bank’s Quantitative Easing programme designed to support demand and lending in the UK economy. She emphasises the importance of gradually withdrawing the QE programme and she argues that the main effect of QE so far has been to hold down the interest rate on government debt (gilts) but that there is little evidence so far that QE has enabled a rise in lending to consumers and small businesses. The Indy’s Big Question looks at QE in their edition today.
Some economists favour a change in the direction of QE away from simple purchases of government debt (the BoE effectively becomes to purchase of first resort for the Debt Issue Office) towards purchases of private sector assets such as shares or bonds issued by companies. The Bank of England is now estimated to hold around a fifth of the total stock of government bonds (gilts).
I really like Roger Bootle’s article in the Telegraph
“QE’s ghastly name makes it seem completely novel and even outlandish. In reality, though, it is no more than the policy of “open market operations” described in the classic textbook on money and banking by Richard Sayers and advocated by John Maynard Keynes in the 1930s, learned by two generations of students of monetary economics but hardly ever implemented until recently. In the vernacular, it is known by the much more catchy title of “printing money”, though hardly any extra notes have been printed.”
“In the end, the way out of our current dire predicament will depend hugely upon what happens to the world economy, over which we have no control and precious little influence. We have done all we can to help our export response to whatever transpires by allowing and encouraging the pound to fall.”
And David Smith wrote about QE in his Sunday Times piece last weekend
November news update:
“The Bank of England voted to boost its quantitative easing (QE) programme, which is aimed at increasing the money supply and helping the economy, bringing planned spending to a total of £200bn. At the end of a two-day meeting, the Monetary Policy Committee (MPC) also chose to keep interest rates at their record low of 0.5 per cent. “
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.