Simple points about central banking and monetary policy

Central banks around the world could raise rates of price inflation, and boost aggregate demand, if they were allowed to buy corporate bonds and other higher-yielding assets.  Admittedly this could require changes in law and custom in many countries

There is no economic theory which says central banks could not do this, as supposed liquidity traps would not apply.  These are not nearly equivalent assets with nearly equivalent yields.

Or the central bank could monetize government purchases, such as purchases of infrastructure.

These possibilities may not be useful or beneficial in every country, but they could be done.

Just ask Master Yoda.

Yet governments do not wish, and that is what we must think more deeply about.  Not “why can’t central banks halt deflation?”  So if in a monetary policy or macroeconomic analysis you read the phrase “out of options,” you would do well to substitute in “governments do not wish to pursue their remaining options.”


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