Dinheiro do helicóptero

Adair Turner e Michael Woodford discutiram a melhora forma de utilizar a política monetária para estimular a procura em situações de zero lower bound: emissão de moeda para financiar compras do Governo (Outright Money Financing – financiamento monetário) ou compra de títulos públicos que permitam financiar estas compras (Quatitative Easing)? Simon Wren-Lewis tem faz bom apanhado da discussão em Debating helicopter money.

So if the two policies can be formally equivalent, where are the differences? The first point to make is that if the government and central bank were a single entity, there would be no difference at all. Under IMF the government would be selling debt to itself. So any difference has to involve the fact that the central bank is an independent actor.

The promise to raise future inflation to stimulate the economy today suffers from a well known time inconsistency problem. The promise works if it is believed, but when the future comes there is an incentive to go back on the promise. So how likely is it that the central bank will take that incentive? Using the second equivalence noted above, let’s talk about the central bank going back on its promise to make money creation permanent. One argument for OMF is that it may be easier for the central bank to do this if it can just sell some of its government debt. On the other hand, if the only way of taking money out of the system is by persuading the government to raise taxes (or cut spending), that seems less likely. Thus OMT is a commitment device for the central bank not to renege on future inflation targets which sophisticated agents may recognise. This argument seems a little tenuous to me, as it assumes that OMF takes place to such an extent that the central bank in effect loses the ability to raise short term interest rates sufficiently to control inflation. I cannot see any central bank willingly undertaking this amount of OMF.

On the fiscal side, agents may base their assessment of future tax liabilities on the published government debt numbers, and fail to account for the additional future revenue the government will receive from the central bank as it passes the interest on its debt back to the government. Here agents are sophisticated enough to base their spending plans on an assessment of future tax liabilities, but naive about how these liabilities are calculated. Possible I suppose, but then the government just needs to start publishing figures for debt held by the private sector excluding the central bank.

A naive government may feel constrained by its fiscal targets and so feel it is unable to undertake bond financed fiscal stimulus, but may be prepared to contemplate money financed fiscal stimulus. That seems quite plausible, until you note that under the second equivalence above, any switch from bond to money financing that was not reversed should be coupled with a temporary increase in the central bank’s inflation target.  A temporary period of OMF that was later undone would not raise average future inflation, but it would equally do nothing to change long run levels of debt either. In that case surely everyone would just start counting OMF as (soon to be) debt.

Turner argues that OMF would discipline governments more than IMF, because central banks would determine the amount of OMF. This argument also seems strained. For example in the UK, where the government sets the inflation target and we have Quantitative Easing, the problem is that the government is borrowing too little, not too much. Woodford worries that OMF blurs the lines between who take fiscal and monetary policy decisions, which is why he prefers IMF. However if the government decides how OMF is spent, and retains control over aggregate borrowing, it is difficult to see the force of this argument.

So I think OMF and IMF are pretty well equivalent. As I’m in favour of IMF (fiscal expansion and more future inflation), then this implies I am in favour of OMF.  If my earlier posts have appeared critical, I think that is because some proponents of helicopter money seemed to deny the equivalence to IMF. However, if pretending that helicopter money is monetary rather than fiscal policy could convince some policymakers to change course, maybe the end justifies the means. Unfortunately Eurozone consolidation continues unchecked, the UK government brushes aside advice from the IMF to relax austerity, and the US recovery is dampened as sequester bites. The intellectual case against austerity is overwhelming (beside the Krugman piece I mentioned in my last post, see also Martin Wolf here), more and more academics are suggesting we need higher inflation (to take just five: Mankiw, Rogoff, Krugman, Ball, Crafts), yet only Japan has been moved to change course. The lunatics and asylum jibe is of course unfair, but just how long will it take policymakers to start addressing the problems of today, rather than the half imagined problems of the past.