10  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  10  For what it’s worth, as a matter of terminology, I think this would more accurately be described as “financial repression” than “monetary finance”. Either way, I don’t really see how it’s possible to do this, not least because of the open, global capital markets in which all borrowers, public and private alike, now operate. If the claim is that even variations in the financial conditions facing the private sector have no bearing on inflation, one wonders how monetary authorities (including the MPC) are able to control it to begin with. It’s surely not a coincidence that inflation has been stable only when there’s been a stable regime for monetary policy. That wouldn’t be possible unless policy routinely had an effect on it. Chart 4 is informative in this respect. Financial repression might be more feasible if it were possible to depress the yield on government debt alone (i.e. to raise its price), leaving untouched financial conditions facing the private sector. But if that artificial gap were to endure for any length of time it would require quantitative restrictions of some kind, to prevent people selling domestic government debt for some other (relatively under-priced) asset. And because holders of UK assets live abroad as well as at home, those restrictions would have to cover international capital markets as well11. Yet we know such restrictions don’t exist.
I mention this only because some of the commentary claims not so much that QE is potentially fuelling too much inflation, and helping governments that way, but that it’s doing so by artificially depressing the cost of new debt issuance in a manner that does not (somehow) have any impact on inflation. 9  Broadbent (2014). Note that, while the impact of QE is arguably detectable in Chart 7 – the launch in 2009, for example, in the UK and the US, and again this year – it’s not as if bond yields are (or were) otherwise static. They moved around just as much beforehand, generally downwards over this period and especially so during global downturns. They might reasonably have been expected to do so in response to the pandemic, even without QE. Nor are these changes well correlated with fiscal news. As I said earlier, a model of bond yields that has them responding only to government debt and/or QE performs poorly in the data. For more on what’s depressed long-term “neutral” interest rates, see for example, Vlieghe (2018), Broadbent (2014) and the August 2018 Inflation Report. 10 If the perceived risk were that the authorities would try to “inflate away” the debt, it would be priced into conventional bonds alone (and therefore into the “breakeven” spread between the yields on conventional and indexed debt); if people worried about formal default yields on both would be affected.