The International Experience of Central Bank Asset Purchases and Inflation

Gianluca Benigno and Paolo Pesenti

No 20211020, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Recent inflationary pressures in the global economy have rekindled the debate on the link between money growth and price stability. Specifically, does rapid central bank money creation resulting from large-scale purchases of government securities fuel inflationary spending by households and firms? We argue that there are many valid reasons to be skeptical about this textbook narrative. In this post, we look at the international experience with regard to asset purchases, money growth, and inflation dynamics in the pre-COVID era in an attempt to draw lessons from the recent past. Most notably, we find that the view that large-scale purchases of sovereign debt cause unmanageable inflationary pressures is not supported by the experiences of foreign advanced economies. As a matter of fact, despite the extent and duration of the quantitative easing programs in those economies, central banks faced challenges in achieving their inflation objectives.

Keywords: quantitative easing; inflation (search for similar items in EconPapers)
JEL-codes: E2 E31 E5 (search for similar items in EconPapers)
Date: 2021-10-20
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
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