News from Cass Business School

New Bank of England Monetary Policy Committee member speaks at Cass

Dr Adam Posen gives first public speech since joining MPC

Tuesday, 27 October, 2009

In his first speech as an external member of the Bank of England Monetary Policy Committee, Dr Adam Posen last night discussed some of the issues arising from the introduction of quantitative easing this year to a Cass audience.
Dr Posen argued that the impact of unconventional monetary policy on the economy is likely to be positive even though it is not possible to be precise about the size or timing of its impact. He said there is no evidence to support the conclusion that quantitative easing will lead to unacceptably high inflation.
Dr Posen argued that policy should be thought about in terms of its impact on specific credit markets as well as the overall sums spent. A key concern highlighted is the ability of the financial sector to support recovery. He said, the relative limits in the UK on availability of non-bank financing for smaller companies may constrain emergence of a sustainable private-sector led recovery.
He discussed how the structure of the UK financial system provides few alternative means of financing for businesses when the major banks are troubled. This, he says, is a disturbing parallel to Japan in the 1990s. Those parallels should not be exaggerated but neither overlooked. He argued that restructuring the UK financial system to provide more banking competition and more access to non-bank financing is in the interests of economic recovery as well as of financial stability. Dr Posen restated his view that the banking system must be largely fixed before the macroeconomic stimulus is needed to be withdrawn.

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