Wednesday, July 18, 2012

Is QE a monetary easing

Or is it just an asset swap?

It's an important question and one that's been debated a bit on the blogosphere. QE seems to be the only monetary policy instrument that the Fed is capable (and claims to be legally allowed) of deploying at this point, whilst currently refusing to do so for reasons unknown. But nevermind the present action/inaction dilemma. Is QE actually effective as an instrument - in other wors, does it ease monetary policy - by which (I think) we all mean "increase base money."

As evidence that this is not, consider this. FT Alphaville implies that Polish yields are being driven negative by SNB in its continued quest of keeping the Euro/Swissie at 1.20. Well, without any evidence to back this - suppose that this is indeed what's happening. Is the Swiss National Bank now acting to ease monetary policy in Poland? If not, what is the difference between what SNB is doing and what ECB could be doing via QE?

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