Last week I was away from the internet and work – as I was trying to finish off my paper for the NZAE conference this year. So I missed this post by Cochrane (including a bunch of great comments) and a reply by Sumner. Yah.
I’d note something that doesn’t come from these posts – some other people are simultaneously saying QE does nothing to increase NGDP, and that it creates asset bubbles. This argument is far from clear to me, if QE is doing nothing because it is merely a swap of assets with the same yield with no macro impact then why do asset prices change? Isn’t the increase in asset prices partially due to a lift in expected NGDP growth. “Bubble” isn’t an answer to everything – we sort of need to understand where it is coming from.
I am sort of hoping some people may stumble here to tell me what I’m missing 🙂
Update: AAMC on twitter reminded me about this post, which I’d seen as well. The Cochrane post and comments are, to my mind, a discussion on the same sort of issues – and the Sumner post is a reminder that we have to think about the monetary policy rule and the expectations channel, and base money is special because it is a medium of account (I’m a bit nervous here, as I suspect T-bills are also seen as a medium of account in a large number of contexts, which takes us back to the Cochrane post).
All in all, the debate about QE as a mechanism is important. Thank goodness we are not in this situation in NZ.