Macroeconomic and Macroprudential Policy Making

13 Pages Posted: 19 Nov 2014

See all articles by Alistair Milne

Alistair Milne

Loughborough University - School of Business and Economics

Date Written: November 15, 2014

Abstract

This short and preliminary paper considers the relationship between fiscal, monetary and prudential policy instruments. It argues that the currently employed instruments (government borrowing, expansion of central bank balance sheets) do not address the underlying reason for slow global growth, the high levels of leverage in the (public and private) non-financial sector. It suggests that addressing this problem requires ‘monetary expansion by gift’ (also known as helicopter money). It further argues that this should be treated from an accounting perspective so that it does not result in any deterioration in central bank net worth and employment of this instrument should be independent of day-to-day political control and therefore conducted by an independent central bank as one of the basic monetary policy instruments. It also argues that macroprudential policies will then be needed to restrain unsustainable credit expansions and are operationally are best though as a branch of large exposure regulation, focusing on the exposure of institutions to systemic risks such as commercial property prices or maturity mismatch.

Keywords: Fiscal policy, Helicopter money, liquidity trap, monetary policy by gift, seigniorage, secular stagnation, central banks, quantitative easing

JEL Classification: E02, E04, E05, E06, H06

Suggested Citation

Milne, Alistair K. L., Macroeconomic and Macroprudential Policy Making (November 15, 2014). Available at SSRN: https://ssrn.com/abstract=2526742 or http://dx.doi.org/10.2139/ssrn.2526742

Alistair K. L. Milne (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Loughborough
Leicestershire, LE11 3TU
United Kingdom

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