Their function was exactly the same as that of conventional policy: to increase money and credit aggregates, lift demand and stabilise medium-term inflation around our objective. Indeed, Milton Friedman argued that asset purchases are not only an appropriate tool of monetary policy, they are ‒ under certain circumstances ‒ essential to boost money supply and maintain price stability.
However, this has taken it a long way into uncharted – and dangerous – territory. It’s no secret that I am critical of the ECB’s government bond purchase programmes in particular. If Eurosystem central banks buy government bonds issued by countries with poor credit ratings, this will distribute the risks of unsound fiscal policy among all the euro-area states.