WASHINGTON—The world's leading central bankers have spent
much of the past few months putting out financial fires and launching measures
aimed at recharging the global economy.
On Friday, they will gather here to gauge the impact of
their easy-money policies—including whether the controversial bond-buying
strategy known as "quantitative easing" is a good weapon to keep in
their monetary arsenals.
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A number of researchers say it is, despite nagging
doubts.
Quantitative-easing programs "stimulate the economy
by reducing credit costs," concludes Mark Gertler, a New York University
professor, in a paper he will give Friday. The conference is sponsored by the
Federal Reserve and the International Journal of Central Banking.
The impact of these policies on unemployment and
inflation "is very similar to that occurring under conventional
policy," said the paper, which Mr. Gertler will present to an A-list of
central bankers, including Fed Chairman Ben Bernanke, Bank of England Governor
Mervyn King, Bank of Japan Governor Masaaki Shirakawa and Jean-Claude Trichet,
the former European Central Bank president. ECB chief Mario Draghi won't be
there.
Quantitative easing, or QE, refers to central-bank
purchases of long-term bonds or other securities to drive down long-term
interest rates and drive up the prices of other assets, such as stocks, to
encourage more spending and investment. It is an alternative to the traditional
tool of lowering or raising short-term interest rates.
Central banks including the Fed, the Bank of England and
the Bank of Japan have used the approach because short-term interest rates are
stuck near zero and can't be moved much lower to support growth. The ECB has
relied on other unconventional measures.
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Critics say these policies are doing more harm than good,
because they cause inflationary pressure without helping growth, damping
household spending power. Some worry, for example, that the policies are
pushing up commodity prices. Even many of those who are sympathetic to QE as a
necessary measure when conventional policy is impossible worry about its costs
and benefits.
Researchers like Mr. Gertler are increasingly taking the
view that the policies work and are incorporating them into formal economic
models for the Fed and other central banks to use in devising new policies.
One of Mr. Gertler's conclusions is that central-bank
purchases of government bonds are less effective than purchases of other
assets, like mortgage-backed securities—a conclusion reached in other academic
research in recent months.
Mr. Gertler's presentation is notable because he is a
friend of Mr. Bernanke's, and the two were close collaborators on economic
research during Mr. Bernanke's years as a Princeton University professor before
joining the Fed.
The two days of meetings are informal and aren't aimed at
setting new policy. But they could help shape how policy makers think about
their next steps.
The meetings, to take place at Washington's Madison
Hotel, will resemble the Fed's annual retreat to Jackson Hole, Wyo., in
everything but the vistas. They are centered on a series of academic
presentations by central bankers and university professors.
Donald Kohn, a Brookings Institution scholar and former
Fed vice chairman, said he hopes quantitative-easing programs won't be needed
in the future but that they "need to remain in the central bank tool
kit." He added that "the general public and many of its elected
representatives do not seem to be convinced of the efficacy of these actions or
that the benefits exceed the potential costs." He said central banks
"need to keep working on delineating and explaining costs and
benefits."
The timing of the conference is significant because many
of the world's central banks have recently completed a new round of measures
meant to stimulate economic growth and forestall another financial crisis.
The Bank of Japan and the Bank of England, for instance,
in recent months have increased asset-buying programs meant to drive long-term
interest rates lower. The Fed has revamped its communication policy and said it
would keep short-term interest rates low until late 2014.
The Fed has left open the option of more bond buying. But
officials have signaled that their decision will depend on how the economy
performs. Faster growth or a persistent pickup in inflation could take the
strategy off the table, while slower growth or inflation could spur the Fed to
act.
Mr. Bernanke will deliver brief opening remarks on
Friday, and Fed Vice Chair Janet Yellen will moderate a panel Saturday with Mr.
King and Mr. Shirakawa.
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