Thursday, October 7, 2010

Competitive devaluation vs. quantitative easing

Interesting and clearly written article (with a somewhat unfortunate title) by Barry Eichengreen over at Foreign Policy's website: Financial Shock and Awe. He makes the useful point that quantitative easing (a good thing in times where deflation is a real concern) is not at all the same thing as competitive devaluation (generally a really bad idea).

Worth noting is one key reason why so many central banks are now pursuing quantitative easing: "fiscal policy, for better or worse, is off the table." Eichengreen simply mentions this, almost as an aside, and then moves on. But from a political economy point of view it is quite important, as it underscores just how important politics is as a constraint on (or inhibitor of) economic policy options that most economics textbooks would expect to see in circumstances such as those we face today.

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