The recent statements by Eugene Fama, Nobel Laureate in Economics (by the way, the actual title is Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel), on the fact that Quantitative Easing is neutral have puzzled many. According to him, “QE doesn’t do much”. When analyzed from the perspective of current debates in macroeconomics, this view is rather hard to be categorized, since no serious approach I know of really thinks about QE in these terms.
There is a growing literature on what exactly the Quantitative Easing has achieved. As we are going see, there is an agreement that QE has led to both higher output and higher inflation, however, there is less agreement on the magnitude and persistence of these effects.
The Fed has recently announced that it will renounce to Quantitative Easing policy. Alan Blinder has a very interesting material that explains pretty well the rationales for why has the FED chosen this approach, how was implemented and what are the exit strategies.
If you read opinions like the one by James Bullard (current president of the Federal Reserve of St. Louis), you might think that Quantitative Easing has been a succes and it has shown how monetary policy can be effective even when the interest rate is near zero.
Some of the most prominent economists believe that inflation is a solution to the economic woes of US and Euro Area, and I particularly mean Krugman and DeLong. But is it so?
Following the effects of the last financial crisis, as the nominal interest rate hit the zero lower bound, the central banks in United States, Euro Area and United Kingdom (to be more precise, it was the Bank of Japan that experienced this approach first) have started to implement a rather extreme form of unconventional monetary policy which became known as the Quantitative Easing.