- The lessons from QE and other 'unconventional' monetary policies - evidence from the Bank of England (2011)
- This paper investigates the effectiveness of the ‘quantitative easing’ policy, as implemented by the Bank of England in March 2009. Similar policies had been previously implemented in Japan, the U.S. and the Eurozone. The effectiveness is measured by the impact of Bank of England policies (including, but not limited to QE) on nominal GDP growth – the declared goal of the policy, according to the Bank of England. Unlike the majority of the literature on the topic, the general-to-specific econometric modeling methodology (a.k.a. the ‘Hendry’ or ‘LSE’ methodology) is employed for this purpose. The empirical analysis indicates that QE as defined and announced in March 2009 had no apparent effect on the UK economy. Meanwhile, it is found that a policy of ‘quantitative easing’ defined in the original sense of the term (Werner, 1994) is supported by empirical evidence: a stable relationship between a lending aggregate (disaggregated M4 lending, i.e. bank credit for GDP transactions) and nominal GDP is found. The findings imply that BoE policy should more directly target the growth of bank credit for GDP-transactions.
- New evidence on the effectiveness of 'Quantitative Easing' in Japan (2011)
- Central banks have recently introduced new policy initiatives, including a policy called ‘Quantitative Easing’ (QE). Since it has been argued by the Bank of England that “Standard economic models are of limited use in these unusual circumstances, and the empirical evidence is extremely limited” (Bank of England, 2009b), we have taken an entirely empirical approach and have focused on the QE-experience, on which substantial data is available, namely that of Japan (2001-2006). Recent literature on the effectiveness of QE has neglected any reference to final policy goals. In this paper, we adopt the view that ultimately effectiveness will be measured by whether it will be able to “boost spending” (Bank of England, 2009b) and “will ultimately be judged by their impact on the wider macroeconomy” (Bank of England, 2010). In line with a widely held view among leading macroeconomists from various persuasions, while attempting to stay agnostic and open-minded on the distribution of demand changes between real output and inflation, we have thus identified nominal GDP growth as the key final policy goal of monetary policy. The empirical research finds that the policy conducted by the Bank of Japan between 2001 and 2006 makes little empirical difference while an alternative policy targeting credit creation (the original definition of QE) would likely have been more successful.
- The unintended consequences of the debt ... will increased government expenditure hurt the economy? (2011)
- In 2008, governments in many countries embarked on large fiscal expenditure programmes, with the intention to support the economy and prevent a more serious recession. In this study, the overall impact of a substantial increase in fiscal expenditure is considered by providing a novel analysis of the most relevant recent experience in similar circumstances, namely that of Japan in the 1990s. Then a weak economy with risk-averse banks seemed to require some of the largest peacetime fiscal stimulation programmes on record, albeit with disappointing results. The explanations provided by the literature and their unsatisfactory empirical record are reviewed. An alternative explanation, derived from early Keynesian models on the ineffectiveness of fiscal policy is presented in the form of a modified Fisher-equation, which incorporates the recent findings in the credit view literature. The model postulates complete quantity crowding out. It is subjected to empirical tests, which were supportive. Thus evidence is found that fiscal policy, if not supported by suitable monetary policy, is likely to crowd out private sector demand, even in an environment of falling or near-zero interest rates. As a policy conclusion it is pointed out that by changing the funding strategy, complete crowding out can be avoided and a positive net effect produced. The proposed framework creates common ground between proponents of Keynesian views (as held, among others, by Blinder and Solow), monetarist views (as held in particular by Milton Friedman) and those of leading contemporary macroeconomists (such as Mankiw).
- A new estimation of the recent tropospheric molecular hydrogen budget using atmospheric observations and variational inversion (2011)
- This paper presents an analysis of the recent tropospheric molecular hydrogen (H2) budget with a particular focus on soil uptake and European surface emissions. A variational inversion scheme is combined with observations from the RAMCES and EUROHYDROS atmospheric networks, which include continuous measurements performed between mid-2006 and mid-2009. Net H2 surface flux, then deposition velocity and surface emissions and finally, deposition velocity, biomass burning, anthropogenic and N2 fixation-related emissions were simultaneously inverted in several scenarios. These scenarios have focused on the sensibility of the soil uptake value to different spatio-temporal distributions. The range of variations of these diverse inversion sets generate an estimate of the uncertainty for each term of the H2 budget. The net H2 flux per region (High Northern Hemisphere, Tropics and High Southern Hemisphere) varies between −8 and +8 Tg yr−1. The best inversion in terms of fit to the observations combines updated prior surface emissions and a soil deposition velocity map that is based on bottom-up and top-down estimations. Our estimate of global H2 soil uptake is −59±9 Tg yr−1. Forty per cent of this uptake is located in the High Northern Hemisphere and 55% is located in the Tropics. In terms of surface emissions, seasonality is mainly driven by biomass burning emissions. The inferred European anthropogenic emissions are consistent with independent H2 emissions estimated using a H2/CO mass ratio of 0.034 and CO emissions within the range of their respective uncertainties. Additional constraints, such as isotopic measurements would be needed to infer a more robust partition of H2 sources and sinks.