Bank of England

Simon J. Evenett, Professor of International Trade and Economic Development and Academic Director of MBA programmes, University of St. Gallen, Switzerland

Christine Lagarde, IMF managing directorF

Christine Lagarde, IMF managing director

On the face of it, the recently agreed expansion of the IMF’s lending capacity suggests that the IMF is back in business. Since the global economic crisis began no UN or other global public agency has had their resources expanded by governments as much as the IMF. The IMF has also been at the centre of several crisis-era surveillance and reporting initiatives. So is the IMF now even better placed to better contribute to the recovery of the global economy? Maybe not. Read more

In August of 2010, I argued on this forum that the Fed should expand its policy of Quantitative Easing. By now the US is well into a programme that, by the end of June 2011, will have added $600bn to the Fed’s balance sheet. There is widespread discussion of what to do next. Read more

Update: Read Prof Farmer’s response to readers’ comments

By Roger E. A Farmer

I argue in this piece that:

  • Quantitative easing should be expanded
  • Even if the Bank of England were to buy the entire UK national debt that this policy would not be inflationary
  • The global recovery is faltering and an expansionary policy is needed to encourage private investors to create jobs
  • Additional quantitative easing could save as much as £38.5bn a year in interest costs to the taxpayer

May 18, 2006 was an important day. It was the day when the Bank of England began to pay interest on reserves. In October 2008 the Fed followed suit. This monumental change in policy gave the Bank an important new tool in its arsenal. It allowed the Bank to influence the economy not just through expansion or contraction of the stock of money, but also through the composition of its balance sheet. Read more

by Peter Boone and Simon Johnson

The US government has moved dramatically, in what it argues is a comprehensive manner, to counteract serious problems in the financial system, and to reduce the risk of a serious recession or worse.  Eurozone policymakers are far more reluctant to intervene.  They remain inclined to handle growing bank failures on a case-by-case basis; and, while their central banks have provided liquidity, they have avoided using other fiscal and monetary policy tools.  If the fortunes of the world economy depended only on the US policy response, we would predict just a fairly severe recession.  The absence of any indication that there will soon be a decisive European policy response suggests we could be in for something considerably worse.

In the view that is increasingly prevalent in the US, we are not facing a Keynesian demand recession, nor the supply side shocks of the 1970s. It is a crisis of confidence very similar to the Asian crisis of 1997-98.  The lesson from these events is when trust in highly leveraged financial markets weakens, there can be long and enduring repercussions across all sectors of the economy. The Federal Reserve’s implicit policy model since September 2007 appears to be tied in part to those events.

In contrast, the frame of reference for European authorities appears to be drawn from the lessons of the 1970s.  They are concerned about inflation and second round effects from past commodity price rises, so they keep interest rates higher.  They have not announced national programmes to bail out financial institutions and borrowers, in part, because of perceived costs relating to future moral hazard. Read more