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Can QE ever work?

I seem to recall you saying that QE could work if the Fed wasn't legally constrained by what it can buy. Is that true? I can't seem to find the article I am thinking of where you discuss what the Fed can and cannot purchase.

It really depends on specifics. QE is different in every country for different reasons. For instance, if the Fed had been allowed to purchase bags of dirt from people then that would have essentially been fiscal policy and it would have been hugely inflationary. Or, in Europe, the ECB is allowed to buy govt bonds thereby eliminating the default risk at the govt levels. Those are important details that make QE powerful in certain situations.

In the USA the Fed is limited to buying T-bonds and super safe assets. So it's a lot like swapping a savings account with a checking account. There just isn't much impact. That's a general view of the way QE works in the USA, but it's a very good starting point for understanding how most people overstate the impact it has.

I wrote a paper on QE a bunch of years ago. You might enjoy it.



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