Commentary by Dr Peter Westaway, chief economist and head of the Investment Strategy Group for Vanguard in Europe.


Biola Babawale: Quantitative easing: Is it a busted flush? My name is Biola Babawale. I am an analyst on Vanguard's sovereign credit desk. I have with me Peter Westaway, Chief Economist and Head of Investment Strategy at Vanguard Europe. Peter, could we start with a summary of what we're looking at on this chart?

Peter Westaway: Okay, thanks, Biola. Yes, so this is a chart showing the size of the balance sheets of the four most important central banks in the world; the US, the UK, Japan and the euro area, and it shows, basically, how much money these central banks have printed as a way to stimulate the world economy since they started doing it in 2008.

Biola Babawale: Peter, as you can see, there has been quite a large amount which has gone into 'QE'. Has it been successful?

Peter Westaway: I think it has been mixed. Just looking at this chart you can see that the US and the UK probably did the most QE and I would say that for those economies, they probably have managed to get their economy back moving again. For Japan and the euro area, inflation is still really low, maybe below zero or at zero in some cases, and so I think the jury is still out on whether QE has worked for those two economies.

Biola Babawale: But are there any alternatives to QE?

Peter Westaway: Well, the QE that they're doing at the moment involves buying assets from the private sector, usually government bonds, so what they could do and the ECB [European Central Bank] have started doing this is buy corporate bonds, they could buy other assets, equities, for example. The other thing they can do, of course, is to cut interest rates into negative territory. That has been tried in Japan and the euro area; [there are] questions about how well that works. Then, finally, they could start just printing money and giving it to people. Sometimes people call that 'helicopter money', that is really getting into fiscal policy territory and that is quite controversial, but they may well have to do that in the end.

Biola Babawale: It is interesting that you have highlighted that, actually, central banks have tried a range of different monetary policy instruments, so do you think we have relied too much on central banks? Are there any other policy alternatives?

Peter Westaway: I think there is a sense in which central banks have taken too much of the brunt of the burden of adjustment. There are other policy actors, obviously, governments can step in, they could be more active on fiscal policy and they could also implement more so-called 'structural reforms', measures that help the economy to work better, so I think looking forward we may see a reliance on more of these policy instruments, as well as just the central banks.

Biola Babawale: Thank you very much, Peter Westaway.

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