Unconventional monetary policies, with a focus on quantitative easing

Abstract

This article distinguishes between credit easing policies and quantitative easing (QE) policies. The authors argue that there are two broad transmission mechanisms associated with quantitative easing: the Friedmanian mechanism, which is based on the theory of the money multiplier and the fractionalreserve banking system; and the Keynesian mechanism, advocated by Keynes in 1930, which relies on its impact on interest rates. The article also deals with the likely consequences of various incarnations of QE policies: QE done with banks, QE done with non-banks, QE for the people, Corbyn's people's QE and green QE. This is done by looking at the impact of these policies on the balance sheets of banks, private agents, the central bank and the government, and on their consequences for the fiscal balance of the government when taking into account the profits that are distributed by the central bank to the government. It is concluded that accounting tricks cannot modify reality.

Endogenous money supply, global liquidity and financial transactions: Panel evidence from OECD countries

“…Especially after the onset of the financial crisis of 2007-2008, there has been renewed interest in the limitations of the conventional and especially unconventional monetary policies which are clearly of monetarist origin (Fontana et al, 2020). Academic arguments emphasize that the inability to control money supply is largely due to the endogenous nature of bank lending (Lavoie & Fiebiger, 2018).…”

“…Sieroń, 2019;Sawyer, 2020;Fontana et al, 2020). As discussed by Lavoie and Fiebiger (2018), the monetarist view is generally that an increase in bank reserves automatically leads to an increase in the broad money, which can lead to higher nominal spending, higher nominal GDP, and higher inflation. Post-Keynesian views, on the other hand, emphasize the endogeneity of money and oppose the monetarist proposition.…”

A Comprehensive Comparison of Fiscal and Monetary Policies: A Comparative Dynamics Approach

“…where 𝜆 30 , is the autonomous portion of shares to total wealth held by the households, whereas 𝜆 31 , 𝜆 32 , 𝜆 33 and 𝜆 34 link the portion of shares to total wealth with the rate of return on government securities, the rate of return on saving deposits, money demand for transactions, and the rate of return on shares, respectively. 7 The nominal value of shares held by the households is:…”

“…As a result, the saving deposit account is: 7 Notice that 𝜆s are defined in such a way that: a) 𝜆 𝑖1 = −(𝜆 𝑖2 + ⋯ + 𝜆 𝑖4 ) for 𝑖 = 1,2,3 (horizontal constraints on coefficients of rates of return for the 𝑖-th financial asset); b) 𝜆 1𝑗 + 𝜆 2𝑗 + 𝜆 3𝑗 = 0 for 𝑗 = 1,2,3,4 (vertical constraints for cross-asset coefficients of rates of return); and c) 𝜆 10 + 𝜆 20 + 𝜆 30 < 1 (vertical constraints for autonomous shares of assets to total wealth). The latter is lower than unity because households can also opt for cash and saving deposits.…”

Households’ Liquidity Preference, Banks’ Capitalization and the Macroeconomy: A Theoretical Investigation

“…Liquidity preference matters simply because it affects the relative importance of the different ways through which capital incomes accrue to households, either direct returns on bonds' holding or banks' dividends. Second, we show that changes in the liquidity preference of the public affect economic activity and capital accumulation both in the short and in the medium 1 In this paper, we obviously refer to the Keynesian view of unconventional monetary policies (see Kregel, 2014;Lavoie, 2016;Lavoie and Fiebiger, 2018), according to which central banks' asset purchases aim at controlling interest rates, long-term ones in particular, and possibly lowering them to minimum levels. This view is perfectly consistent with the theory of endogenous money that, by rejecting the mainstream money multiplier, clearly explains the irrelevance of quantitative easing itself in stimulating banks' credit via its effects on banks' reserves (Rochon, 2016;Lavoie and Fiebiger, 2018).…”