Previous Events
22/02/2010 - Ideas Space
Quantitative Easing: Friend or Future Foe?
The Bank of England entered unchartered territory in January last year when the Treasury authorised it to begin a radical monetary policy experiment that we now know as "Quantitative Easing". Given the unprecedented monetary conditions resulting from the liquidity crisis, the Asset Purchase Facility has been welcomed with open arms, and now stands at almost £200bn invested in UK gilts and corporate debt. But has QE had an economic impact to match its political use? Will the cure prove as dangerous as the disease? How and when should the Bank close the lid on this potential Pandora's Box?
Tickets to this event are restricted - to apply for a place, please email events@policyexchange.org.uk
Several leading economic figures, Roger Bootle, Tim Congdon and Allister Heath and Policy Exchange’s Chief Economist Andrew Lilico recently debated and discussed the merits and potential problems of the Bank of England’s Asset Purchase Programme. It was universally agreed that quantitative easing had been successful in supporting the economy and improving liquidity, however the method by which it had been employed, with small uncertain increases, had limited its effectiveness. Concerns were also expressed about the potential for asset price bubbles resulting from the loose monetary conditions, however this was tempered by the deflationary risks from the UK’s underlying economic weakness.
There was considerable debate as to the importance of fiscal policy in this matter, and although there was considerable consensus in the need to reduce the structural deficit (in line with the thinking of Policy Exchange’s “Controlling Spending and Government Deficits” paper), there was a divergence of opinion regarding the direct effects of fiscal policy, and more precisely the fiscal stimulus, on aggregate demand. Concerns were raised about weak growth in the Eurozone and the US holding back the potential for UK recovery in spite of the downward pressure on sterling, particularly given the Treasury’s overly optimistic growth forecasts.
On more practical considerations it was expressed that an exit strategy from the programme would not be technically difficult, although the Bank’s lack of clarity as to their intentions in this regard was not helpful. It was finally argued that more notice should be taken of a broader set of monetary measures beyond consumer price inflation, including monetary aggregates, asset prices and measures of liquidity, similarly reflecting the views in Policy Exchange’s “Beyond Inflation Targeting” collection of essays from April 2009.
