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Quantitative easing with bite: a proposal for conditional overt monetary financing of public investment

Author

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  • Andrew Watt
Abstract
To address the on-going crisis in the euro area it is proposed to introduce a scheme of conditional, overt monetary financing of public investment (COMFOPI). The inadequate response of monetary and fiscal policy is shown to explain the weak performance of the euro area compared with other advanced countries since the crisis. The measures currently on the table, including the Juncker Plan and quantitative easing QE, are unlikely to bring about the needed substantial improvement in economic growth, while putting growth on a sustainable footing. Advantages and dangers of monetary financing of fiscal policy are discussed in the light of the recent literature. COMFOPI is a form of QE in which bonds newly issued by the European Investment Bank are purchased, on secondary markets, by the ECB, and the financial resources are made available to national governments to finance investment projects. The scheme is explicitly time-limited by being made subject to a price-stability criterion ("conditional"). The provision of central bank money leads directly to higher spending in the economy ("overt"), unlike with QE which relies on indirect channels. A number of ways to operationalise the scheme are discussed.

Suggested Citation

  • Andrew Watt, 2015. "Quantitative easing with bite: a proposal for conditional overt monetary financing of public investment," IMK Working Paper 148-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  • Handle: RePEc:imk:wpaper:148-2015
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    File URL: http://www.boeckler.de/pdf/p_imk_wp_148_2015.pdf
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    Citations

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    Cited by:

    1. Fritz Breuss, 2016. "The Crisis Management of the ECB," WIFO Working Papers 507, WIFO.
    2. repec:spo:wpmain:info:hdl:2441/pm9j25k5p9bc8fsjhn1ov51ca is not listed on IDEAS
    3. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2020. "Explaining the Euro crisis: current account imbalances, credit booms and economic policy in different economic paradigms," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(2), pages 231-266, April.
    4. Nora Albu, 2017. "Explaining unemployment developments in Europe," IMK Studies 57-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Catherine Mathieu & Henri Sterdyniak, 2019. "On public debt in the euro area," SciencePo Working papers Main hal-03403548, HAL.
    6. Oliver Picek & Enno Schröder, 2017. "Euro area imbalances: How much could an expansion in the North help the South?," IMK Working Paper 180-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Agarwal, Samiksha & Chakraborty, Lekha, 2019. "Helicopter Money: A Preliminary Appraisal," MPRA Paper 97897, University Library of Munich, Germany.
    8. Silke Tober, 2015. "Monetary Financing in the Euro Area: A Free Lunch?," IMK Working Paper 152-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. repec:hal:spmain:info:hdl:2441/pm9j25k5p9bc8fsjhn1ov51ca is not listed on IDEAS
    10. Simon Wren-Lewis, 2015. "The Knowledge Transmission Mechanism and Austerity," IMK Working Paper 160-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. Oliver Picek, 2015. "A national public bank to finance a euro zone government: Getting the funds for investment and recovery packages," Working Papers 1512, New School for Social Research, Department of Economics.

    More about this item

    Keywords

    Euro area; monetary financing; quantitative easing; European Central Bank; European Investment Bank; public investment; sustainable growth;
    All these keywords.

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