Yale's Roach: Global 'Monetary Policy Has Lost Discipline and Coherence'
Wednesday, 28 Jan 2015 06:00 AM
Many economists have expressed enthusiasm about the European Central Bank (ECB)'s 1.1 trillion euro quantitative easing (QE) program announced last week. Stephen Roach, a senior lecturer at Yale's School of Management, wasn't one of them.
"In the QE era, monetary policy has lost any semblance of discipline and coherence," Roach, former chairman of Morgan Stanley Asia and the firm's chief economist, writes in an article for Project Syndicate.
"As [ECB President Mario] Draghi attempts to deliver on his commitment [to protect the euro], the limits of his promise — like comparable assurances by the Fed and the Bank of Japan — could become glaringly apparent. Like lemmings at the cliff’s edge, central banks seem steeped in denial of the risks they face," he notes.
"QE's impact hinges on the 'three Ts' of monetary policy: transmission (the channels by which monetary policy affects the real economy); traction (the responsiveness of economies to policy actions); and time consistency (the unwavering credibility of the authorities’ promise to reach specified targets like full employment and price stability)," Roach adds.
"In the QE era, monetary policy has lost any semblance of discipline and coherence," Roach, former chairman of Morgan Stanley Asia and the firm's chief economist, writes in an article for Project Syndicate.
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"As [ECB President Mario] Draghi attempts to deliver on his commitment [to protect the euro], the limits of his promise — like comparable assurances by the Fed and the Bank of Japan — could become glaringly apparent. Like lemmings at the cliff’s edge, central banks seem steeped in denial of the risks they face," he notes.
"QE's impact hinges on the 'three Ts' of monetary policy: transmission (the channels by which monetary policy affects the real economy); traction (the responsiveness of economies to policy actions); and time consistency (the unwavering credibility of the authorities’ promise to reach specified targets like full employment and price stability)," Roach adds.
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