BIS paper warns against ‘timid’ QE and ‘debt-averse’ fiscal policy
“Timidity” by central bankers or an excessive aversion to debt by fiscal policy-makers can make economic problems worse, research published by the Bank for International Settlements finds.
Boris Hofmann, Marco Jacopo Lombardi, Benoît Mojon and Athanasios Orphanides use a “small-scale” model to explore fiscal-monetary interactions when rates hit the zero lower bound.
Their analysis highlights several policy lessons. First, low equilibrium rates create “significant constraints” for monetary
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