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Because monetary policy is more effective than fiscal policy?

• nickles 7y ago
  > Because monetary policy is more effective than fiscal policy? It’s difficult to justify such a broad statement. Consider that the Fed likely deepened and lengthened the Great Recession by reducing the availability of liquid assets (QE) and simultaneously encouraging banks not to lend out the bank reserves they received in the process (IOER).
  • ikeboy 7y ago
    The Fed making mistakes doesn't mean the claim is wrong. My understanding was that QE helped, but IOER was a mistake.
    • nickles 7y ago
      > The Fed making mistakes doesn't mean the claim is wrong. I was trying to highlight that policy missteps are damaging and can occur with either monetary or fiscal policy. > My understanding was that QE helped, but IOER was a mistake. I’m familiar with an argument that QE1 was effective while QE2 and QE3 failed to provide the same degree of stimulus, but I can’t recall the substance at the moment. Comparing the QE responses of US, Eurozone, and Chinese central banks indicates QE did stabilize economies, but it also drained liquid, fungible assets from the market at a time where liquidity was most needed.
• klipt 7y ago
  Except it stops working when you can't go below 0?
  • gridlockd 7y ago
    That's not true, negative interest rates and QE are means of "going below zero". QE clearly has "worked" in that the markets were propped back up, for the time being.
  • nickles 7y ago
    > Except it stops working when you can't go below 0? Central banks are able to utilize other policies (e.g. helicopter money via TLTROs) to provide economic stimulus at this level.
    • ajross 7y ago
      How is helicopter money substantially different from fiscal policy though?
      • ikeboy 7y ago
        For one, it doesn't add to the debt.
        • ajross 7y ago
          It does, though. Or neither does, maybe. "Debt" in macroeconomics isn't a zero sum thing. The central bank lifting in money creates inflationary pressure instead of a negative number in the general fund transaction log, so to counteract that the promise is always made via whatever mechanism is chosen ("helicopter money" is a bewildering variety of distinct tricks) to "buy back" the stuff you dropped later on, to prevent the runaway inflation scenario. So in practice, it's no different than spending with concomitant bond issue, which also promises to pay the money back. And is also an inflation pressure if the market decides the promise isn't worth the nominal interest rate.
          • ikeboy 7y ago
            I thought the whole point of helicopter money is because you want inflation and shouldn't be buying it back later.
      • nickles 7y ago
        My understanding is that helicopter money expands a central bank’s balance sheet (irreversibly) whereas fiscal policy does not, but the distinction is murky when considering policy like tax rebates.
• ajross 7y ago
  When interest rates are negative, monetary policy has literally zero effectiveness. That's the whole problem being discussed.
  • ikeboy 7y ago
    And the whole point of the comment I was responding to was that fiscal policy would be saner than a specific monetary policy. They don't claim the monetary policy wouldn't be effective or even that it would be less effective.
  • radford-neal 7y ago
    No. The central bank can stilll create money. Create enough money and inflation will result. There is no doubt about this. None at all.
    • ajross 7y ago
      Sort of misses the point. Despite the name, printing money isn't normally something one considers as "monentary policy", which is about interest rate setting and bank balance regulation. Yes, you can print your way out of a negative interest rate trap, because at its core printing money is exactly the same thing as deficit spending in the immediate term. So I don't see that's responsive: this is isomorphic to "just spend your way out".
      • radford-neal 7y ago
        I think common terminology would say that printing money is about as core a function of "monetary policy" as is imaginable. If the government has outstanding bonds, "printing money" by having the central bank buy them does not seem like "deficit spending". If the government has no outstanding bonds, and isn't running a deficit, it would be necessary to cut taxes to create a deficit (and hence bonds for the central bank to buy), or for the central bank to buy non-government assests. But this hypothetical is entirely unrealistic in present circumstances anyway. But what you call things doesn't really matter. You don't offer any argument for why printing money wouldn't solve the problem, assuming there is one.