Innocent Frauds Meet Goodhart’s Law in Monetary Policy

Levy Economics Institute of Bard College Working Paper No. 622

23 Pages Posted: 5 Oct 2010

See all articles by D.J. Bezemer

D.J. Bezemer

University of Groningen - Faculty of Economics and Business

Geoffrey W. Gardiner

affiliation not provided to SSRN

Date Written: September 5, 2010

Abstract

This paper discusses recent UK monetary policies as instances of John Kenneth Galbraith’s “innocent fraud,” including the idea that money is a thing rather than a relationship, the fallacy of composition (i.e., that what is possible for one bank is possible for all banks), and the belief that the money supply can be controlled by reserves management. The origins of the idea of quantitative easing (QE), and its defense when it was applied in Britain, are analyzed through this lens. An empirical analysis of the effect of reserves on lending is conducted; we do not find evidence that QE “worked,” either by a direct effect on money spending, or through an equity market effect. These findings are placed in a historical context in a comparison with earlier money control experiments in the UK.

Keywords: Quantitative Easing, UK Innocent Frauds, Accounting

JEL Classification: E52, E58

Suggested Citation

Bezemer, Dirk J. and Gardiner, Geoffrey W., Innocent Frauds Meet Goodhart’s Law in Monetary Policy (September 5, 2010). Levy Economics Institute of Bard College Working Paper No. 622, Available at SSRN: https://ssrn.com/abstract=1687750 or http://dx.doi.org/10.2139/ssrn.1687750

Dirk J. Bezemer (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Geoffrey W. Gardiner

affiliation not provided to SSRN ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
90
Abstract Views
594
rank
407,079
PlumX Metrics