13th August 2012
In an interview published by the Financial Times, Adam Posen, an outgoing member of the Bank of England's Monetary Policy Committee, has challenged the bank's stipulation that central banks should only buy government bonds through it program of quantitative easing (QE) to boost growth.
"I have no question in my mind that what we're doing with QE is preventing things from getting much worse, but that doesn't mean you couldn't have an additional or better instrument," he said.
Rejecting the standard view of central bankers that only elected governments can buy private sector assets, he added: "I personally view the teeth-gnashing and garment-rending about what's fiscal and monetary as too much drama for too little content."
"As long as the central bank isn't monetizing government debt in the primary market-directly buying from the government so it can expand fiscal policy-I don't think it really matters that much what assets the central bank acts on."
Posen, who the FT says became known for his dovish views, regularly urging other MPC members to do more to stimulate the economy, also argued the bank could be more effective in boosting economic growth with access to other instruments to keep inflation close to its 2 percent target.
"I really feel the MPC does have to have the authority to make up its mind on what instruments it wants to use and not be constrained by either the BoE executives saying, ‘We don't want to do x' or ‘That's the financial policy committee's territory'."
Meanwhile, in a piece for the Independent, ex MPC rate setter David Blanchflower reiterated Posen's view, writing, "It is blindingly apparent that the MPC should have done much more monetary stimulus a while ago, including unconventional asset purchases."
Above all, he said, last week's August Inflation Report – where the MPC downgraded its growth forecast once again, to 0 per cent for 2012 and around 1.7 per cent in 2013 – illustrates just how hopeless the MPC have been not only in their forecasts but also in their predictions of subsequent data revisions.
"The MPC's new growth forecast looks broadly similar in shape to the one from May 2011 and looks equally unlikely to be correct, with a central projection of growth of 2 per cent by 2013 and beyond with only a slim prospect of zero or negative growth."
"The MPC didn't know where the economy had been, didn't know where it was when they made the forecast, and had no clue where it was going and still doesn't."
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