- The Bank of England is wrong and inconsistent in its claims that QE creates no inflationary pressure (The Telegraph)
But QE increases the amount of bank reserves, as the Bank of England illustrates clearly on p11. So since the amount of reserves is a key market constraint on lending (for given Bank of England interest rates), and extra QE means more reserves, that means more QE implies less constraint on lending so if lending is profitable to do banks will do more of it, creating more money and making extra loans (boosting GDP and inflationary pressures in the process).
But on p5 (bottom part of the first column) the document explains correctly that when the ratio of bank loans to bank deposits rises, that creates an incentive for banks to do less loans. Exactly the same logic tells us that if the ratio of bank loans to bank deposits falls (as is the direct impact of QE), that means there is an incentive for banks to do more loans. So when the Bank of England claims QE creates no such incentive, it is contracting its own arguments!
A central thesis of the school of economists called "monetarists" has been that the impacts of changes in the money stock upon the broader economy are not straightforwardly observable, that they do not occur according to ratios one can calculate precisely, and that the lags between policy changes and impacts upon the real economy and inflation are unpredictable and sometimes long. It is precisely for that reason that such economists have been sceptical of the use of macroeconomic policy to "fine-tune" economies at anything beyond a general level.
- Good economists are almost always right about almost everything (The Telegraph)
Contrary to most popular commentary, the main financial economics models have worked extremely well during the financial crisis, and remain in place.
For good economists, given time and sound theory, are almost always right about almost everything.