Monetary Policy of Quantitative Easing at the Central Bank’s High Interest Rates

Sergey Blinov

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the possibility of conducting an unconventional monetary policy of Quantitative easing (QE) at high interest rates using the example and experience of Russia. The Central Bank of the Russian Federation has raised the key interest rate on six occasions during the 12 months of 2014 from 5.5% to 17%. The Central Bank has been coming in for criticism for such an increase. However, this criticism is unfair, as sometimes interest rate reduction or failure to raise interest rate result in adverse consequences. Luckily, interest rate is not the only and often far from being the most efficient tool of successful monetary policy. During the hardest phase of the most recent crisis, the central banks worldwide, for example, U.S. Federal Reserve System, resorted to another tool, i.e. Quantitative easing (QE), rather interest rates (which, by that time, had been virtually dropped down to zero). Some experts recognize those to be an important innovation devised by Ben Bernanke, Head of the U.S. Fed during 2006 - 2014. The Central Bank of Russia now has an opportunity of employing a still more innovative policy, i.e. to have “quantitative easing” at high interest rates rather than at zero rates. The experience of the «Golden Decade» (the decade of robust economic growth in Russia between September 1998 and September 2008) proves the efficiency of such monetary policy. The criterion for «sufficiency» of quantitative easing must be the growth rate of the real money supply. In June 2014, the real money supply decreased. That has happened for the first time since December 2009. It shows that there is a need for urgent action on the part of the Central Bank. To bring about steady economic growth, it is required that such quantitative easing be put in place as would make real money supply grow at a pace no slower than the target growth rate for GDP. According to preliminary estimate, the volume of necessary easing would be in the range between RUR 0.6 and 1.9 trillion. Such a program may make itself felt as soon as 3-4 months after its launch.

Keywords: Monetary Policy; Central Banking; Interest Rates; Quantitative Easing (QE); Economic Growth; Money Supply (search for similar items in EconPapers)
JEL-codes: E31 E32 E40 E43 E50 E51 E52 E58 E65 G01 N10 O11 (search for similar items in EconPapers)
Date: 2014-12-19
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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