Imagining that how to spend the BoE missing stimulus was the GE2017 centrepiece

Myself and many others have suggested that in order to help out monetary policy when interest rates reach their effective lower bound [around 0], there should be a discretionary fiscal stimulus.

My version of this is that the BoE would quantify how much was missing given what was possible not just with rates, but also QE.  And the Treasury would decide whether to accept this advice, and, if so, how to implement it.

Imagine if this system was already in place for the 2017 General Election.

The question for all parties would then be:  do you agree with the BoE’s current estimate of the missing stimulus?  If not, what do you think it is, and why does your analysis differ?  If you do agree, how are you going to implement and unwind it?  What other – for example distributional – objectives are guiding those choices?  If there has been missing stimulus applied in the past, has it worked and had the intended effect?  If not, what is to be done differently next time?  If the BoE, in the face of one of the many downside risks that might materialise, were to sharply increase its missing stimulus quantification, what would your contingency be?  How are the answers to all these to be made consistent with long term fiscal sustainability?

This would be a much better world, in my opinion, than the clash of brands and scare stories that colours the current discussion of fiscal policy on the airwaves, which – Labour’s draft manifesto aside – never mentions the constraints on monetary policy.

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1 Response to Imagining that how to spend the BoE missing stimulus was the GE2017 centrepiece

  1. Tommy Burke says:

    You’re on Planet Sterling again Tony. I’m still puzzled how the great economic minds of the day can so willingly accept the concept of QE as plausible in the long run. As an emergency measure surely the objective of a central bank would be to offload debt back to the market and allow normal monetary policy resume, not continue to prop up failed government fiscal policies. As long as Russian, Chinese and Middle Eastern funds flow to the UK, the currency will not correct and the government will continue to delude itself about the true value of sterling and by definiton the underlying state of the economy. The same is true for the Dollar, the Yen and to a lesser extent the Euro….
    Isn’t it about time economists started talking about global currency re-aligment, and the necessity for inflation in Western economies to really tackle the debt mountains? rather than persist with the rather dis-credited notion that societies (as opposed to the planet) are best served by fatuous economic activity…

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