jetpack domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /mnt/stor08-wc1-ord1/694335/916773/www.tvhe.co.nz/web/content/wp-includes/functions.php on line 6131updraftplus domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /mnt/stor08-wc1-ord1/694335/916773/www.tvhe.co.nz/web/content/wp-includes/functions.php on line 6131avia_framework domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /mnt/stor08-wc1-ord1/694335/916773/www.tvhe.co.nz/web/content/wp-includes/functions.php on line 6131Indeed – as Mervyn King was saying to some degree this involves moving returns on assets “forward”. However, I fear that the discipline is getting a bit lost in partial equilibrium logic is they see this as the entire purpose of QE.
I can’t help but look at this through the prism of a monetary policy rule, that is meant to deal with issues of co-ordination that lead to “insufficient” aggregate demand. Ultimately, the expectations channel in this sense is supposed to be “self-fuffiling” whereby the lift in output comes from the utilisation of underutilised resources. The portfolio rebalancing effect is the “spark” for a broader cumulative lift in AD.
As a result, if we are talking about an effective tool – the direct impact of the porfolio rebalancing effect should be nothing compared to the solution to this co-ordination problem. In the same way we view the impact of changes in interest rates. And whether it solves this purpose is an important question – one Scott Sumner would say is shown by the impact on market pricing (in terms of forward looking inflation and NGDP expectations).
The bank subsidy line is important – but that is a separate issue in my mind. One that needs to be tackled for the sake fairness rather than countercyclial monetary policy 🙂
]]>One problem with the asset swap approach is the specter of future reversal. I’d hazard a guess and say this is unlikely to be re-wound but could be used as a method to cool an overheated economy. I wouldn’t like to be around when the bond market reverses. Will make 1994 look like a picnic.
The main issue is that they implemented a policy which had two foci: lowering rates AND liquifying balance sheets (rescuing the banks). So they tried to deal with a liquidity and solvency problem at the same time plus the resulting collapse in real economic activity. It’s therefore relying on rising asset prices to drive new investment. The problem with that is that it does tend to distort prices across the economy (housing for example).
It’s a bit like banks buying sovereign bonds in Europe and funding that with cheap wholesale money. Money for old rope? Perhaps not.
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