The Central Banker's Case for Doing More
Adam S. Posen presents his view on the role of monetary policy in the global economic recovery, in particular in the large Western countries, and whether the major central banks in the United Kingdom and beyond should be doing more in the coming months. Posen argues that monetary policy should continue to be aggressive about promoting recovery, and further quantitative easing should be undertaken. Policymakers face a clear and sustained uphill battle, in which monetary ease has an ongoing role to play, even if it may not deliver the desired sustained recovery on its own. In every major economy, actual output has fallen so much versus where trend growth would have put them, and trend growth has not been above potential for long enough as yet, that there remains a significant gap between what the economy could be producing at full employment and what it currently produces. Thus, policymakers should not settle for weak growth out of misplaced fear of inflation. If price stability is at risk over the medium term, it is on the downside. There are, however, some very serious risks if policy errors are made by tightening prematurely or even by loosening insufficiently. The risks that Posen believes the United Kingdom and other major Western countries face now are those of sustained low growth and near deflation turning into a self-fulfilling prophecy (as in Japan in the 1990s and in the United States and Europe in the 1930s) and/or of inducing a political reaction that could undermine these countries' long-run stability and prosperity. Inaction by central banks could ratify decisions both by businesses to lastingly shrink the economy's productive capacity and by investors to avoid risk and prefer cash. These tendencies are already present, and insufficient monetary response is likely to worsen them. The combination of these risks with the potential attainable gains motivates Posen's call for additional monetary policy stimulus.
|Date of creation:||Oct 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.piie.com
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth N. Kuttner & Adam S. Posen, 2003.
"The Difficulty of Discerning What's Too Tight: Taylor Rules and Japanese Monetary Policy,"
Working Paper Series
WP03-10, Peterson Institute for International Economics.
- Kuttner, Kenneth N. & Posen, Adam S., 2004. "The difficulty of discerning what's too tight: Taylor rules and Japanese monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 53-74, March.
- Olivier J. Blanchard & Lawrence H. Summers, 1986.
"Hysteresis and the European Unemployment Problem,"
427, Massachusetts Institute of Technology (MIT), Department of Economics.
- Field, Alexander J., 2006. "Technological Change and U.S. Productivity Growth in the Interwar Years," The Journal of Economic History, Cambridge University Press, vol. 66(01), pages 203-236, March.
- Shigenori Shiratsuka, 2010.
"Size and Composition of the Central Bank Balance Sheet: Revisiting Japanfs Experience of the Quantitative Easing Policy,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 79-106, November.
- Shigenori Shiratsuka, 2009. "Size and Composition of the Central Bank Balance Sheet: Revisiting Japanfs Experience of the Quantitative Easing Policy," IMES Discussion Paper Series 09-E-25, Institute for Monetary and Economic Studies, Bank of Japan.
- Shigenori Shiratsuka, 2010. "Size and composition of the central bank balance sheet: revisiting Japan's experience of the quantitative easing policy," Globalization and Monetary Policy Institute Working Paper 42, Federal Reserve Bank of Dallas.
- Min Ouyang, 2011. "On the Cyclicality of R&D," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 542-553, May.
- Okina, Kunio & Shiratsuka, Shigenori, 2004. "Policy commitment and expectation formation: Japan's experience under zero interest rates," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 75-100, March.
- Carmen M. Reinhart & Vincent R. Reinhart, 2010.
"After the Fall,"
NBER Working Papers
16334, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Vincent R. Reinhart, 2010. "After the fall," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 17-60.
- Marco Terrones & M. Ayhan Kose & Stijn Claessens, 2008.
"What Happens During Recessions, Crunches, and Busts?,"
IMF Working Papers
08/274, International Monetary Fund.
- Stijn Claessens & M. Ayhan Kose & Marco E. Terrones, 2009. "What happens during recessions, crunches and busts?," Economic Policy, CEPR;CES;MSH, vol. 24, pages 653-700, October.
- Claessens, Stijn & Kose, Ayhan & Terrones, Marco E, 2008. "What Happens During Recessions, Crunches and Busts?," CEPR Discussion Papers 7085, C.E.P.R. Discussion Papers.
- Kimura, Takeshi & Ueda, Kazuo, 2001. "Downward Nominal Wage Rigidity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 50-67, March.
- Adam Posen & Nicolas VÃ©ron, 2009.
"A solution for Europe's banking problem,"
- Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008.
"Zombie Lending and Depressed Restructuring in Japan,"
American Economic Review,
American Economic Association, vol. 98(5), pages 1943-77, December.
- Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc.
- Kuroda, Sachiko & Yamamoto, Isamu, 2003. "The Impact of Downward Nominal Wage Rigidity on the Unemployment Rate: Quantitative Evidence from Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(4), pages 57-85, December.
- Aghion, Philippe & Hemous, David & Kharroubi, Enisse, 2014.
"Credit Constraints, Cyclical Fiscal Policy and Industry Growth,"
12585130, Harvard University Department of Economics.
- Aghion, Philippe & Hemous, David & Kharroubi, Enisse, 2009. "Credit Constraints, Cyclical Fiscal Policy and Industry Growth," CEPR Discussion Papers 7359, C.E.P.R. Discussion Papers.
- Philippe Aghion & David Hemous & Enisse Kharroubi, 2009. "Credit Constraints, Cyclical Fiscal Policy and Industry Growth," NBER Working Papers 15119, National Bureau of Economic Research, Inc.
- Laurence M. Ball, 2009. "Hysteresis in Unemployment: Old and New Evidence," NBER Working Papers 14818, National Bureau of Economic Research, Inc.
- Naohiko Baba & Motoharu Nakashima & Yosuke Shigemi & Kazuo Ueda, 2005.
"The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market,"
CIRJE-F-339, CIRJE, Faculty of Economics, University of Tokyo.
- Naohiko Baba & Motoharu Nakashima & Yosuke Shigemi & Kazuo Ueda, 2006. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
- Baba, Naohiko & Nakashima, Motoharu & Shigemi, Yosuke & Ueda, Kazuo, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," MPRA Paper 816, University Library of Munich, Germany.
- Naohiko Baba & Motoharu Nakashima & Yousuke Shigemi & Kazuo Ueda, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," CIRJE F-Series CIRJE-F-374, CIRJE, Faculty of Economics, University of Tokyo.
- Abdul Abiad & Petya Koeva Brooks & Irina Tytell & Daniel Leigh & Ravi Balakrishnan, 2009. "Whatâ€™S the Damage? Medium-Term Output Dynamics After Banking Crises," IMF Working Papers 09/245, International Monetary Fund.
- Zheng Liu & Glenn Rudebusch, 2010. "Inflation: mind the gap," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan19.
- Jacob Funk Kirkegaard, 2009. "Structural and Cyclical Trends in Net Employment over US Business Cycles, 1949–2009: Implications for the Next Recovery and Beyond," Working Paper Series WP09-5, Peterson Institute for International Economics.
- Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, June.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Antonio Fatás & Ilian Mihov, 2009. "Why Fiscal Stimulus is Likely to Work," International Finance, Wiley Blackwell, vol. 12(1), pages 57-73, 05.
- Alexander Field, 2009. "The Great Depression, the New Deal, and the Current Crisis," Challenge, M.E. Sharpe, Inc., vol. 52(4), pages 94-105, July.
When requesting a correction, please mention this item's handle: RePEc:iie:pbrief:pb10-24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster)
If references are entirely missing, you can add them using this form.