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http://ssrn.com/abstract=1924353
 
 

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Central Banking in an Era of Quantitative Easing


Dr. Andrew Sheng


Independent

September 8, 2011

Levy Economics Institute Working Paper No. 684

Abstract:     
This paper compares central banking in the era of Bagehot’s Rule (1873) and the current era of quantitative easing (QE) and zero (or near-zero) interest rate policy (ZIRP) to suggest that our analytical frameworks need updating. It also proposes some rules for emerging-market central banks to follow today. Bagehot’s Rule — that in a financial crisis, the central bank should lend freely against good collateral, and at market interest rates — can no longer apply in an age when the gold standard has been abandoned, hard budget constraints have disappeared, and the national perspective of central banks limits their ability to regulate a shadow banking system that is global in nature. Central ban s in reserve currency countries have used QE and ZIRP because the political will to stem excess consumption and raise taxation is lacking. Central banks in emerging markets might avoid the domestic collectiveaction traps that the deficit countries have fallen into by applying a systems-wide analytical perspective. This would involve privileging diversity, imposing a strict limitation on concentration, the promotion and regulation of the commons, and increased taxation.

Number of Pages in PDF File: 18

Keywords: Financial Economics, Keynes, Keynesian, Post-Keynesian, Government Policy and Regulation

JEL Classification: B26, E12, G28

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Date posted: September 8, 2011 ; Last revised: December 10, 2011

Suggested Citation

Sheng, Dr. Andrew, Central Banking in an Era of Quantitative Easing (September 8, 2011). Levy Economics Institute Working Paper No. 684. Available at SSRN: http://ssrn.com/abstract=1924353 or http://dx.doi.org/10.2139/ssrn.1924353

Contact Information

Andrew Sheng (Contact Author)
Independent
No Address Available
United States
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