Thread by @DanielaGabor

In my evidence to @LordsEconCom, I argued that QE has fiscal spillovers that are poorly theorised & understood.
Reliance on QE alone created a massive failure of fiscal-monetary governance in 2010.
Good to see @guardian editorial warn against repeating that mistake post-pandemia

Bank of England's Internal Evaluation Office noted that the Bank should understand better the monetary-fiscal linkages created by QE.
I would go further, and argue that this gap affects:
a) transparency of QE
b) effectiveness of QE
c) design of fiscal measures
d) unwind of QE

a) Is QE transparent?

NO, if transparency = communicating clearly and effectively reasoning behind quantitative targets

two reasons: no theoretical tools to arrive at precise number, and no explicit consideration of 'monetary-fiscal linkages'

why: ideology

b) has QE reached its limits?

QE is necessary but not sufficient.

Structurally necessary because government bonds have a macrofinancial role

Insufficient: 5 QE rounds yet UK still bad at financing productive activities, nor is it transformational of monetary-fiscal relations

c) Biggest risk of QE:

that the macrogovernance failure of 2010 is again repeated, when government embraced austerity because the Bank of England seemed to be in control of macroeconomic conditions, and promised to single-handedly bring us back to some general equilibrium.

d) when should the Bank of England unwind?

The risk is that it unwinds too fast, too soon & puts undue pressure on fiscal stance.

My recommendation (and IEO): the MPC should ask the Bank for substantive research on fiscal-monetary spillovers of unwind b4 proceeding.

the existing MPC position - that the Bank will cap reinvestments of QE portfolio (thus shrinking its holdings) when policy rate hits 1.5% is completely, and I stress, completely random.