Quantitative Easing Is a Very Experimental Policy: Rogoff

Quantitative Easing Is a Very Experimental Policy: Rogoff

Quantitative easing is a very experimental policy as policymakers do not "really know" what they are going to deliver through such an easy money policy, a senior Harvard University professor said here today.

"Quantitative easing is a very experimental policy. That is because policymakers never really know what they will deliver through it," Kenneth Rogoff, the Thomas D Cabot Professor of Public Policy at the Harvard University said.

Every month, the US Fed buys USD 85 billion of bonds. Fed Chairman Ben S Bernanke has nearly quadrupled the central bank's assets since 2008 with bond purchase programmes aimed at reducing unemployment by lowering long-term borrowing costs.

Rogoff was speaking on 'Policy debates in the aftermath of the financial crisis' at 14th L K Jha Memorial Lecture series at the Reserve Bank of India (RBI).

Rogoff, who has been closely following the US Fed's easy money, said that quantitative easing works very well on the blackboard as it can be put in or out, but it's not exactly clear what happened on the ground as there is not enough past experience to go by.

Rogoff said that there is a lot of uncertainty in the global economy and there is uncertainty about what the right model is and what it would do.

"So, we are in a situation, after the financial crisis, where there is an overhang of the debt and other problems like Europe, creating uncertainty. I wouldn't put it that they don't know what they are doing, but no one could be sure what they are doing. We don't know if we have a right model," he said.

"Certainly, in emerging markets, what it means is that you are facing multiplied uncertainties and I don't blame advanced economy policymakers for it, because they don't quite know what's going on and what to do about it," he said.

Speaking about the Eurozone debt crisis, Rogoff said, "Periphery debt in Eurozone has yet to be written down to the levels that needs to be sustainable." He said that the Eurozone crisis is not over and it is a deep source of uncertainty.

Talking about challenges that India faces after the financial crisis, he said, "This period of uncertainty and slow growth is just a fact of life that you have to adjust to. On the other hand, India should feel perfectly free to give its opinions on what should be done when these policies have an impact on it".

He said India needs continued structural reforms to rekindle growth.

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