This too would have an immediate impact on interest rates and inflationary expectations.
Now when a bank prints money to do this, I think the yen will go down and inflationary expectations will go up.
And, of course, there is one big way that QE can harm the economy: by reducing the value of the dollar, thus increasing both inflation and inflationary expectations.
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They have come thick and fast but a common thread is that the best way for the BOJ to jump-start the economy and affect inflation and inflationary expectations is through asset markets notably the stockmarket by the use of its own balance sheet.
If China cannot tame its headstrong banking system and quell inflationary expectations, its reputation for macroeconomic management will suffer.
K. and has not raised inflationary expectations as the Fed and most central banks believe why not 3 or 4 or even more?
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The European economists say that inflation has become less persistent over time, as monetary policy has become concentrated on price stability and on keeping inflationary expectations low.
If it buys government bonds, and if this increases inflationary expectations (the point of the policy), bond yields could rise.
But this correlation seems to be caused more by global factors interest-rate changes, inflationary expectations and so on than by the economics of individual countries.
The bank also fears that lower short-term rates would do little to repair Europe's economic problems, because they would raise inflationary expectations and thus long-term interest rates.
Those lamentations could provide comfort to Fed officials worried about deflation, since it appears that inflationary expectations are alive and well despite the fact that inflation has been virtually non-existent for the last couple of years.
At the same time, a long period of low inflation has anchored inflationary expectations, so prices and wages are less likely to take off if demand grows faster.
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That is no catastrophe, but high oil prices will nonetheless feed inflationary expectations (see article) and will have much the same effect on the economy as a tax increase.
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Once raised, inflationary expectations tend to burn brightly and are famously difficult to extinguish, but the Fed appears to have decided that the risks of deflation and the overall sluggishness of the economy justify the gamble.
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Nearly half a century later, Paul Volcker in 1981-82 put the country into a deep recession with high interest rates to curb inflationary expectations that were out of hand and destroying our competitiveness.
At the same time inflationary expectations appear to be quite well anchored, and so we do not project rapid declines in inflation or deflation.
But, by purchasing government bonds, it could still affect the economy through inflationary expectations, a fall in the exchange rate and a rise in equity prices.
With inflationary expectations now well anchored just below 2% and the core rate of inflation at 1.6%, there seems little danger of inflation surging out of control.
Mounting inflation will also put pressure on Fed Chairman Ben Bernanke and his program of quantitative easing, dubbed QE2, devised to spark inflationary expectations. (Read Distressed Debt Investors Prefer Real Estate in 2011).
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This also exposes that even in the most extreme inflationary spikes, there are plenty of examples where our expectations for protection and positive real returns were not met.
By speaking regularly and aggressively about a second round of quantitative easing, they have been successfully jawboning inflationary expectations higher, as attested to by the recent dip of TIPS into negative yield territory for the first time.
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Firms are confusing the inflationary rise with an actual growth in aggregate demand and are therefore not moderating their output expectations accordingly.
In America and Britain the shrinking supply of government bonds has made bond yields less reliable as indicators of inflationary expectations.
The market's confidence in the U.S. to service its debt (without recourse to inflationary money printing) is much more affected by expectations of long-term growth than by dog-and-pony exercises on spending that future Congresses will revisit umpteen times in the future.
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