Article;
Is QE lowering rate of inflation.
Comment;
We are replacing illiquid assets with liquid assets which
means we can expect inflation. More liquidity, more inflation... In this sense
QE is inflationary... But i agree with interest rate increase because interest
cost will go up, prices will go -up. Our purpose to generate inflation will be
solved. We want a policy which can make people spend more; it is a demand
problem, even if it is under compulsion under price-rise. If inflation is high
people will have to spend more. But if prices go down due to disinflation,
probably deflation, people will spend willingly because now they have more
money, they do not need wages/income to increase, when prices fall real wages
increase. We do not need persistent deflation but a short-period of lower
prices to remove excess supply and then back to the normal. The problem with QE
is that we need to pursue it for a very long-time if we have to bring
unemployment to its natural rate because we need to remove excess supply and we
will have to wait till people’s income increase, which is constant in the
short-run. Higher real wages are easy to achieve than a nominal appreciation
during a recession hang-over.
Our other problem is liquidity-trap a situation which has
made people accumulate reserve and post-pone spending because they are
expecting a deflation and interest rate are at zero. However, to improve
savings in banks we need to improve return on savings. We will not need QE to
improve banks balance-sheet it will get repaired itself. More reserves for
lending.
I think deflation is also a rational expectation because
when prices are elevated after a period of increase people expect it to come
down during recession. We should not go opposite of the popular-expectation…
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