The primary purpose of doing QE is — or should be — to expand purchasing power. FT Greenwood
If the central bank buys securities from banks, there can be no assurance that the money supply will increase.
However, if it buys securities from non-banks, this guarantees that new deposits will be created, expanding the money supply.
Of course, if firms or households are deleveraging — repaying debt — the central bank may need to conduct even larger scale asset purchases to counter any reduction of deposits due to the debt repayments.
John Greenwood, FT 30 May 2016
The writer is chief economist at Invesco and a member of the BoE’s shadow Monetary Policy Committee
However, if it buys securities from non-banks, this guarantees that new deposits will be created, expanding the money supply.
Of course, if firms or households are deleveraging — repaying debt — the central bank may need to conduct even larger scale asset purchases to counter any reduction of deposits due to the debt repayments.
John Greenwood, FT 30 May 2016
The writer is chief economist at Invesco and a member of the BoE’s shadow Monetary Policy Committee
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