Second, the scale of asset buying we do should follow from a clear sense of why markets have been malfunctioning. I’ll distinguish between liquidity and sustainability problems. Central banks can provide liquidity, while challenges like fiscal sustainability are best dealt with elsewhere. Third, we need more clarity around the mechanics of central bank asset purchases, quantitative easing (QE), and the ‘zero lower-bound’.
These concepts are pretty hard to understand. It is easy, for example, to take the mistaken view that QE is ‘free money’. Finally, I will reflect on the utility of inflation targeting for addressing the current economic conditions and potential depression-type conditions.