The ASI’s paper “The Real Problem was Nominal” was quoted in The Daily Telegraph.
Some experts have already warned that the ECB is not doing enough. Scott Sumner, a leading monetary economist, said that “European officials have not learned any of the lessons offered by the Japanese experience” of prolonged economic stagnation.
“The [QE] policy would have been far more effective if done a year or two ago,” he wrote in a paper published by the Adam Smith Institute.
“The Real Problem was Nominal” - written by Prof Scott Sumner, a leading economist who was a key inspiration for the Federal Reserve’s QE3 programme - explains how the European Central Bank is repeating the mistakes that the Fed and Bank of England made in the 2008 crisis—trying to plan credit and micromanage the financial sector, when the real issue is excessively tight monetary policy.
The paper argues that Eurozone quantitative easing will not reverse the Eurozone’s decline unless it is open-ended and tied more explicitly to the ECB’s inflation target. Targeting nominal GDP—the total amount of spending in the economy, also known as aggregate demand—would be even better, the paper argues, guaranteeing more stability when unexpected supply-side shocks like oil price movements make inflation targeting trickier.