Free exchange: The Exceptional Central Bank

Posted: August 1, 2014 in economy
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Winning the battle, losing the war

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Free exchange


The European Central Bank should adopt quantitative easing now rather than as a last resort

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ALONE among its peers, the European Central Bank (ECB) has resisted quantitative easing (QE). That policy—creating money to buy financial assets—has been used at varying times by the central banks of America, Britain and Japan to fight deflation and stimulate economies flattened by the financial crisis of 2008. Yet the ECB still shuns QE, treating it as a weapon of last resort, even though the euro zone is suffering from “lowflation”, with prices rising by just 0.5% in May and June, far below the bank’s target of almost 2%. Is it right or wrong to forgo a policy that has become standard practice elsewhere?
One reason to doubt the efficacy of QE in the euro area is that banks rather than markets dominate the provision of credit there. In America, in contrast, …

via Economic Crisis


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