Why have central banks’ massive doses of bond purchases in Europe and the United States had so little effect on the general price level?
A plausible generalization is that increasing the quantity of money through QE gives a big temporary boost to the prices of housing and financial securities, thus greatly benefiting the holders of these assets.
A small proportion of this increased wealth trickles through to the real economy, but most of it simply circulates within the financial system.
Keynes argued that economic stimulus following a collapse should be carried out by fiscal rather than monetary policy.
So, the reason why QE has had hardly any effect on the general price level may be that a large part of the new money has fueled asset speculation, thus creating financial bubbles, while prices and output as a whole remained stable.
One implication of this is that QE generates its own boom-and-bust cycles.
Minsky would view QE as an example of state-created financial instability.
Robert Skidelsky Project Syndicate 15 September 2021
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