“Dithering”

Adam Posen is on the BoE Monetary Policy Committee, so he surely can be considered an insider. He has an op-ed in the NYT aptly titled: “Central Bankers: Stop Dithering. Do Something”. That´s very different from Atlanta Fed Lockhart suggestion that “we should “dither with improving communications”!

I don´t agree with all Posen says, especially regarding his concentration on the interest rate transmission mechanism and that monetary stimulus would decrease long rates. If done convincingly, monetary “stimulus” would more likely raise rates!

But in this he is perfectly right:

Independent central bankers tend to become very squeamish about expressing support for any particular government proposal, especially when it involves agreeing to buy government bonds. Tragedies have occurred, however, when independent central banks let worries about the perception that they were too close to the government prevent them from doing something constructive in times of crisis.

And

Central bank officials have wasted too much time over the last year worrying about how their institutions would appear to markets, to politicians and to the public, were they to undertake more stimulus. Sometimes you have to do the right thing even if the benefits take time to become evident. If we do not undertake the monetary stimulus that the grim outlook calls for, then our economies and our people will suffer avoidable and potentially lasting damage.

3 thoughts on ““Dithering”

  1. Great blogging recently, João! And good job, Posen.

    The BOE’s own research does tell them that QE lowered gilt yields in the short term, and raised them in the longer term due what they call the “portfolio balance effect”:

    http://www.bankofengland.co.uk/publications/quarterlybulletin/qb110301.pdf

    The BoE do seem to think about QE in terms of impact on NGDP, see e.g. p12.

    http://www.bankofengland.co.uk/publications/inflationreport/ir11nov.pdf

    I’ve been reading through old Inflation Reports. Some read so strongly like NGDP targeting is quiet eerie. In 2006, they clearly saw a slowdown in NGDP growth and corrected it.

    “One of the main ways in which monetary policy influences inflation is by affecting movements in aggregate nominal demand.” http://www.bankofengland.co.uk/publications/inflationreport/ir06aug.pdf

    So tragic that they were “distracted” in ’08.

  2. Pingback: Adam Posen calls for more QE – that’s fine, but… « The Market Monetarist

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