Getting Credit Flowing: A Non-Monetarist Approach to Quantitative Easing
Speech presented at the Dean's Lecture Series, Cass Business School, London
It is a rare occasion to have well over a hundred people, including many younger people with presumably more exciting things to do, show up on a Monday evening for a speech about monetary policy. Or rather, it would be rare, were it not for the well-known commitment of City University’s students to economics, and for the challenging economic situation that we find ourselves in today. Despite being gratified by tonight’s turnout, I can hope that at least the latter reason for popular attention to macroeconomic policy will abate before long.
The worst threats from the crisis of 2008–09 are behind us, and there are even indications that the recession—now a severe but normal one—is coming to an end. The aggressive and unconventional monetary policy measures undertaken by the Bank of England (along with those by the UK government and by other major central banks and governments) played a critical role in ruling out the worst outcomes that might have come out of the financial panic of 2008–09. The negative impact on the real economy from the financial panic was obviously of historic and awful proportions, but limiting the impact and precluding an even greater worsening of conditions was a success of policy. As a number of my MPC colleagues have argued in recent weeks, the Bank’s Quantitative Easing [QE] policies contributed both to this prevention of a deflationary spiral and the subsequent improvement in credit conditions, asset markets, and inflation expectations. To this I would add that QE eased the successful implementation of fiscal policy stimulus, which was also constructive.