The Great Debate UK
Back in the last quarter of 2012 when Mark Carney was announced as the Governor-elect of the Bank of England, imaginations ran wild about the new arsenal he could bring to the BoE’s toolkit for getting the UK economy moving again. GDP targeting and unlimited QE were not beyond the realms of possibility. Carney in the past had dismissed suggestions that central bankers were out of options when it came to stimulating over-leveraged developed economies. However, as we get closer to his start date the debate has shifted regarding monetary policy.
The Bank of Japan is throwing the kitchen sink at their economy, at the same time as debate is raging at the Fed that QE3 should come to an end. Added to this, the BoE seems to be having its own internal debate about the effectiveness of the UK’s quantitative easing policy.
Where Carney stands regarding these debates is what we want to know as his start date at the Old Lady comes into view. All eyes and ears will be on his response to questions about the positive and negative effects of QE. He is likely to be asked about the Bank of Japan’s enormous monetary policy programme announced earlier this month. While he is likely to be diplomatic, it will be interesting to see if he believes the BoJ’s economic objective – to use monetary stimulus to reach a 2% inflation target in 2 years – is realistic, and if QE is the best way to do this.
Will Carney adopt the BOJ-style of QE and throw the kitchen sink at the UK economy? Or will he adopt the more cautious approach of the ECB? What does he think about the Fed’s QE programme and the prospect of the end of the largest stimulus programme the world has ever known?
Dear Mark Carney,
As you arrive in your new office, you will not be short of free advice, least of all from economists. Nonetheless, like a supporter of the away team valiantly trying to make himself heard above the roar of the home crowd, this is my feeble attempt to compete against the chorus of voices calling for ever more, ever larger doses of QE, ever lower interest rates and even more devaluation of the Pound.
Just say no!
What, after all, has QE achieved?
We can never know for sure what might have happened without it – my colleagues are still arguing about the effects of economic policy in the nineteen-thirties, so we can’t wait for a definitive answer about 2008 and its aftermath – but the evidence in its favour is far from overwhelming, whereas the damage it is doing is plain for all to see, especially in two areas.
–Darren Williams is Senior European Economist at AllianceBernstein. The opinions expressed are his own.–
Bank of England governor-elect, Mark Carney, has raised hopes that the central bank may soon switch to a nominal GDP target. Although the costs seem to outweigh the benefits, the attractions of a radical new approach will grow if the economy remains stuck in the doldrums.
from Anatole Kaletsky:
When Mark Carney, the respected head of Canada’s central bank, was appointed on Monday to the even more august position of governor of the Bank of England, Britain’s reaction was a characteristic blend of self-deprecation and smugness.
The self-deprecation was publicly expressed by an Opposition MP, Barry Sheerman: “Isn’t it a little surprising that the leading banking nation on earth could not find a British candidate for the job?” This feeling of mild embarrassment seemed to be quietly shared by many Britons in addition to the distinguished domestic candidates who were passed over.