News from Cass Business School

Ex-MPC Members urge the Bank of England to extend quantitative easing

Wednesday, 4 November, 2009

Former Bank of England Monetary Policy Committee (MPC) members Dr DeAnne Julius, Professor Charles Goodhart, and Professor Willem Buiter all urged a continuation of the quantitative easing programme at Fathom Consulting’s Monetary Policy Forum (MPF), hosted at Cass on Monday 2 November.
Fathom have teamed up with Cass to host the MPF which brings together experts and opinion-formers from across the business, financial and political spectrum. It has been established to provide a rigorous, objective and constructive external cross-check on the Bank of England and its Monetary Policy Committee. In doing so, it aims to challenge the orthodox thinking that dominates the Bank of England, and UK economic policy-making in general.
Although there was consensus amongst the panellists that the quantitative easing programme should continue, this was not a ringing endorsement of the Bank of England’s strategy for reviving the UK financial sector.
Dr Julius said she supports a further £25 billion pounds of quantitative easing, but spread out over the next three months, with a view to stopping altogether in February.  She said: I think it's time to think about phasing out QE, and phasing out support to the financial sector. But I would do it very cautiously."
Professor Buiter called for the MPC to switch to purchasing private-sector assets to support the flow of credit to businesses.  He said: Because gilt rates - long rates especially - are if anything ominously low rather than ominously high, they should have engaged in outright purchases of private securities. They should still do that, I think about 50 billion of it," he said.
He also suggested the Bank should charge commercial banks a fee of 0.75 percent of reserves they deposit with it to encourage lending, with Professor Goodhart also favouring cutting to zero the 0.5 percent interest rate the Bank currently pays banks.
Professor Goodhart said he would seek finance ministry approval to spend a further 25 billion pounds on QE, but not commit to further actual purchases immediately if he were still on the MPC.  He said: The world is getting to a point where there is too much of a good thing in terms of sheer injections of liquidity, particularly of a kind taken by the U.S. and the UK."

After the event, Dr DeAnne Julius spoke to Cass about the challenges to the UK’s economy:

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