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Olivier Blanchard

What Olivier Blanchard thinks about quantitative easing

@olivier-blanchard · 24 positions · 1 change of mind

Economist; former chief economist of the International Monetary Fund.

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3 dated positions, 2022, in their own words. Our reading of what Olivier Blanchard has said — not written or endorsed by them.

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  1. Our readingA central bank can eliminate a self-fulfilling ('sunspot') debt crisis simply by credibly committing to buy as many bonds as needed at the low interest rate.

    Their wordsThis is precisely the role the central bank can play. By announcing that it stands ready to buy the bonds that investors want to sell at the price associated with the low interest rate, and credibly indicating that it has deep enough pockets to buy whatever is needed, it can eliminate the bad equilibrium.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 12th of 22 in this piece

    interest ratesinvesting

    Interesting

  3. Our readingCentral bank purchases of government bonds are not bailouts and do not automatically cause inflation, since they only change the composition of the consolidated government's liabilities, not their total.

    Their wordsGovernments have not been bailed out by their central banks. As I discussed earlier, central bank intervention does not reduce the overall liabilities of the consolidated government, just their composition. And it does not automatically lead to more inflation: It increases the size of the balance sheet of the central bank, but it does not increase the size of the non-interest-paying money stock.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 13th of 22 in this piece

    inflationinterest ratesgovernment

    Interesting

  5. Our readingCanceling government bonds held by a central bank creates no fiscal space, because the reduction in government interest payments is exactly offset by an equal reduction in the profits the central bank remits to the government.

    Their wordsThe proposition is that the cancellation of the bonds held by the central bank would decrease the amount of interest payments and thus the debt service of governments. And indeed, it would. But it would have another effect—namely, to decrease the revenues of the central bank and thus the profits that the central bank turns in to the government. This second effect would be exactly of the same size as the first, and the net effect on the government budget constraint would be equal to zero.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 14th of 22 in this piece

    interest ratesgovernment

    Interesting