Radical New Central-Bank Thinking? The Case for Monetary Finance (by Adair Turner)

The International Monetary Fund has held its sixteenth annual Jacques Polak Research Conference on 5-6 November 2015. The conference was intended to provide a forum for discussing innovative research in economics and to facilitate the exchange of views among researchers and policymakers. The theme of this year’s conference was “Unconventional Monetary and Exchange Rate Policies.”

Adair Turner, Chairman of the Institute for New Economic Thinking, has presented his proposal for central bankers to overtly finance increased budget stimulus with permanent increases in the money supply.

“…all the really important issues are political, since the technical issues surrounding monetary finance are already well understood (or should be) and that the technical feasibility and desirability in some circumstances of monetary finance is not in doubt. Monetary finance of increased fiscal deficit will always stimulate aggregate nominal demand: in some circumstances it will be a more certain and/or less risky way to achieve that stimulation than any alternative policy lever: and the scale of stimulus can be appropriately calibrated and controlled – there is no knife edge non-linearity which makes dangerously high inflation inevitable.”

Here you can read the full speech.

See the presentation slides.

You can watch the video of his speech here.

The Wall Street Journal article commenting on Turner’s proposal suggests that:

Such an option would be highly provocative to fiscal hawks and those who fear giving central banks too much power, especially when many economists question both the returns and financial-turmoil side effects from existing easy-money policies.

The provocative nature of the proposal underscores the extent of the deflation-related anxiety among some policy makers, however.

Read more here: Deflation Risks May Warrant Radical New Central-Bank Thinking, the IMF’s Chief Economist Says

You may also be interested to read this interview with Lord Turner on Monetary Reform.