Central banks across advanced economies should buy more financial assets in a last-ditch attempt to support growth, Bank of England policymaker Adam Posen has said.
Advanced economies face no real inflation danger, and the limited effect of previous rounds of quantitative easing in the United States and Britain mean more is needed, Posen wrote in an opinion piece for Reuters.
"Additional monetary stimulus is the last line of defence for the advanced economies today, and G7 central banks should purchase more assets if we are to have any hope of our economies ever catching up," Posen said.
Posen has advocated that the Bank start a second round of QE for more than a year, though his views have found little favour so far with other members of the Monetary Policy Committee.
However, he has rarely been so direct in calling for central banks outside Britain to take action, and his comments come shortly after U.S. Federal Reserve Chairman Ben Bernanke was guarded about the prospects of further U.S. easing in a speech at Jackson Hole, Wyoming.
More asset purchases are needed to check the global economic downturn, preserve productive capacity in economies and smooth the path for governments to get their finances in order, Posen said.
Posen rejected the idea that QE was either ineffective or dangerously inflationary, pointing to stable rates of core inflation in Britain and the United States.
"The evidence is clear that the Bank of England's and the Federal Reserve's asset purchases had a positive significant effect," he said. "If the improvement was insufficient, because the response to a given injection was less than some hoped, increase the dose."
Posen also chastised the European Central Bank, suggesting it appeared to use monetary policy as a bargaining tool to get politicians to pursue more prudent fiscal policy.
"Whenever central banks go beyond lecturing ... into threats of withholding stimulus to try to compel elected officials into fiscal rectitude, they fail," he wrote. "That kind of structural failure is arguably a major source of the euro area's underlying difficulties."
Central banks should see their role as one of avoiding recession, and thereby making fiscal problems easier to resolve, he added.
City A.M. Reporter