What Olivier Blanchard thinks about quantitative easing

@olivier-blanchard · 24 positions · 1 change of mind · On ppll ↗

Economist; former chief economist of the International Monetary Fund.

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Only Olivier Blanchard on quantitative easing. See everyone on quantitative easing

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

3 positions so far — this page is not yet offered to search engines.

1. 1 Jun 2022

   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.

   interest ratesinvesting

   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 All 22 from this book

3. 1 Jun 2022

   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.

   inflationinterest ratesgovernment

   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 All 22 from this book

5. 1 Jun 2022

   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.

   interest ratesgovernment

   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 All 22 from this book