Innocent frauds meet Goodhart’s Law in monetary policy
AbstractThis paper discusses recent UK monetary policies as instances of Galbraith’s ‘innocent frauds’, including the idea that money is a thing rather than a relationship, the fallacy of composition that what is possible for one bank is possible for all banks, and the belief that the money supply can be controlled by reserves management. The origins of the idea of QE, and its defense when it was applied in Britain, are analysed through this lens. An empirical analysis of the effect of reserves on lending is conducted; we do not find evidence that QE ‘worked’ either by a direct effect on money spending, or through an equity market effect. These findings are placed in a historical context in a comparison with earlier money control experiments in the UK.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 23961.
Date of creation: Jul 2010
Date of revision:
quantitative easing; UK; innocent frauds; accounting;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
- NEP-BAN-2010-07-24 (Banking)
- NEP-CBA-2010-07-24 (Central Banking)
- NEP-HPE-2010-07-24 (History & Philosophy of Economics)
- NEP-MAC-2010-07-24 (Macroeconomics)
- NEP-MON-2010-07-24 (Monetary Economics)
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- L. Randall Wray, 1998.
Economics Working Paper Archive
wp_252, Levy Economics Institute.
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