Frances kicks it off by retweeting two posts. Joined by John Aziz, Tomas Hirst and Mike Sankowski.
RT @noahpinion: John Cochrane offers a theory of why QE might be contractionary: johnhcochrane.blogspot.com/2013/05/the-fe… h/t @markthoma
— Frances Coppola (@Frances_Coppola) May 23, 2013
RT @azizonomics: @noahpinion @markthoma Discussion between me and @tomashirstmoney on contractionary effects of QE... pieria.co.uk/articles/has_t…
— Frances Coppola (@Frances_Coppola) May 23, 2013
@azizonomics imho your discussion with @tomashirstmoney on QE was heading in the right direction. Distributional effects....
— Frances Coppola (@Frances_Coppola) May 23, 2013
@frances_coppola @tomashirstmoney I tend to agree with you Frances.
— John Aziz (@azizonomics) May 23, 2013
@tomashirstmoney @azizonomics I've heard it argued that QE is contractionary bc it replaces interest-bearing assets w non-interest bearing +
— Frances Coppola (@Frances_Coppola) May 23, 2013
@tomashirstmoney @azizonomics but I don't think that's right, at least not for short-term debt. Deposit rates & T-bill rates about the same
— Frances Coppola (@Frances_Coppola) May 23, 2013
@tomashirstmoney @azizonomics think contractionary effect is due to hoarding - broken money transmission mechanism (again)
— Frances Coppola (@Frances_Coppola) May 23, 2013
@frances_coppola @tomashirstmoney Speculators taking money from real economy to flip bonds & deflation expectations leads to cash hoarding.
— John Aziz (@azizonomics) May 23, 2013
@azizonomics @frances_coppola @tomashirstmoney Repo markets have less to use, interest income goes away, and John's points.
— Mike Sankowski (@traderscrucible) May 23, 2013
@azizonomics @frances_coppola Me too. If it's contractionary likely to be to due to the interaction btw QE and a damaged financial system.
— Tomas Hirst (@tomashirstmoney) May 23, 2013
@frances_coppola @tomashirstmoney Also shadow banking effects — reduced collateral for Repo leads to less shadow credit creation.
— John Aziz (@azizonomics) May 23, 2013
@azizonomics @tomashirstmoney what I can't work out though is why QE gets more contractionary the more of it you do....any thoughts?
— Frances Coppola (@Frances_Coppola) May 23, 2013
@azizonomics @tomashirstmoney Yes, somehow money actually leaves the real economy...I think the key to that is corporate behaviour not banks
— Frances Coppola (@Frances_Coppola) May 23, 2013
@azizonomics @frances_coppola If QE is not primary driver of low gov debt yields, purchases cld just speed up yield squeeze elsewhere.
— Tomas Hirst (@tomashirstmoney) May 23, 2013
@azizonomics @frances_coppola Fewer safe assets constrains available collateral outside of CB reserves, while banks themselves are impaired.
— Tomas Hirst (@tomashirstmoney) May 23, 2013
@tomashirstmoney @azizonomics Collateral squeeze impairs money transmission and constrains growth of broad money.
— Frances Coppola (@Frances_Coppola) May 23, 2013
@tomashirstmoney @azizonomics There's definitely a yield squeeze. Question is though, why would that be deflationary for the real economy?
— Frances Coppola (@Frances_Coppola) May 23, 2013
@frances_coppola @azizonomics Yield squeeze cld be symptom. It's misdiagnosis that's the problem if volume not yield of safe assets crucial.
— Tomas Hirst (@tomashirstmoney) May 23, 2013
@tomashirstmoney @azizonomics yes....question is whether this is stock or flow problem. If flow, then volume matters more than yield
— Frances Coppola (@Frances_Coppola) May 23, 2013
@frances_coppola @azizonomics One thought - w/ Keynesian stimulus economists likely to put increased activity down to improved AD but... 1/2
— Tomas Hirst (@tomashirstmoney) May 23, 2013
@frances_coppola @azizonomics ...wonder how much of an impact sharp increase in gov debt issuance in itself would have. 2/2
— Tomas Hirst (@tomashirstmoney) May 23, 2013
@tomashirstmoney @azizonomics BIS have argued for this. Would improve shadow banking liquidity, so should raise M3
— Frances Coppola (@Frances_Coppola) May 23, 2013
@tomashirstmoney @azizonomics We're still focusing on financial system, though. Think behaviour of corporates is important too...
— Frances Coppola (@Frances_Coppola) May 23, 2013
@tomashirstmoney @azizonomics ..eg borrowing at rock-bottom rates to finance share buybacks while holding back invstmnt & forcing down wages
— Frances Coppola (@Frances_Coppola) May 23, 2013
