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Liquidity Preference and the Entry and Exit to ZIRP and QE

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  • Jan Kregel

Abstract

The Fed's zero interest policy rate (ZIRP) and quantitative easing (QE) policies failed to restore growth to the US economy as expected (i.e., increased investment spending a la John Maynard Keynes or from an expanded money supply a la Ben Bernanke / Milton Friedman). Senior Scholar Jan Kregel analyzes some of the arguments as to why these policies failed to deliver economic recovery. He notes a common misunderstanding of Keynes's liquidity preference theory in the debate, whereby it is incorrectly linked to the recent implementation of ZIRP. Kregel also argues that Keynes's would have implemented QE policies quite differently, by setting the bid and ask rate and letting the market determine the volume of transactions. This policy note both clarifies Keynes's theoretical insights regarding unconventional monetary policies and provides a substantive analysis of some of the reasons why central bank policies have failed to achieve their stated goals.

Suggested Citation

  • Jan Kregel, 2014. "Liquidity Preference and the Entry and Exit to ZIRP and QE," Economics Policy Note Archive 14-5, Levy Economics Institute.
    • Handle: RePEc:lev:levypn:14-5
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    References listed on IDEAS

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    1. Pavlina Tcherneva, 2014. "Reorienting fiscal policy: a bottom-up Approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 37(1), pages 43-66.
    2. Richard J. Kent, 2004. "Keynes's Lectures at the New School for Social Research," History of Political Economy, Duke University Press, vol. 36(1), pages 195-206, Spring.
    3. J.A. Kregel, 1998. "Aspects of a Post Keynesian Theory of Finance," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 21(1), pages 111-133, September.
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    Cited by:

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