...against fictions and other tall tales

Saturday, 19 October 2013

Which unconventional monetary policies hold most promise?

Kudos to Biagio Bossone, Chairman of the Group of Lecce and former central banker (and circuit theorist par excellence), for his first-rate analysis (see here: part 1 and part 2) of the different types of unconventional monetary policy measures that have been implemented and proposed in the last few years!

Bossone's piece does a fantastic job of presenting the different policy proposals into six distinct categories based on their implied transmission channel and the degree of cooperation between the fiscal and monetary authorities that is required in order to implement the proposed measures.

The main take-away from the analysis is that Bossone finds the proposals that aim to boost aggregate demand via fiscal actions are the most promising. According to Bossone, the benefits of fiscal measures (with or without actions by the monetary authority) are that their effect is more direct than policy measures such as quantitative easing (which works indirectly via its impact on interest rates) or forward guidance (which works indirectly via its effect on the public's expectations on future interest rates).

In the concluding paragraph, Bossone writes,
...this result vindicates the proposed measures to expand the money supply via overt monetary financing or neo-chartalism, which aims to inject new money independently of central banks' interest-rate policies, especially if these are limited by the zero lower bound.

Bossone, B., Unconventional monetary policies revisited, Part 1 and Part 2, Vox, October 2013


  1. The question that remains is 'WHY are these policies not adopted'? Political feasibility or bias against fiscalism?

    1. I think Adair Turner discussed this. There seems to be a real aversion among the current batch of policymakers and politicians against any actions that could be regarded as debt monetization. Also, I think years of decrying such policies by economists didn't help either...

  2. It's about time MMT gets the recognition it deserves

    1. I think your chronology is off. Unless I'm misreading FRB, "MMT" retainers and theorists may have popularized and highlighted some historically established concepts, but the origins belong back in time, the waters were charted way then- even before Minsky and Godley. I don't want to shake your enthusiasm, but Keynesians, and some great ones have been around for a long time.

      Thanks for the ref, circuit. Nod.

      Good sailing. Some strong gusts appearing on the eastern front.