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Monetarism rides again? US monetary policy in a world of Quantitative Easing

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  • Minford, Patrick
  • Meenagh, David
  • Le, Vo Phuong Mai

Abstract

This paper gives money a role in providing cheap collateral in a model of banking; this means that, besides the Taylor Rule, monetary policy can affect the risk-premium on bank lending to firms by varying the supply of M0 in open market operations, so that even when the zero bound prevails monetary policy is still effective; and fiscal policy under the zero bound still crowds out investment via the risk-premium. A simple rule for making M0 respond to credit conditions can substantially enhance the economy's stability. Both price-level and nominal GDP targeting rules for interest rates would combine with this to stabilise the economy further. With these rules for monetary control, aggressive and distortionary regulation of banks' balance sheets becomes redundant.

Suggested Citation

  • Minford, Patrick & Meenagh, David & Le, Vo Phuong Mai, 2014. "Monetarism rides again? US monetary policy in a world of Quantitative Easing," CEPR Discussion Papers 10250, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10250
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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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