Nobel Prize in Economics laureate Thomas Sargent yesterday expressed a cautious view on the US Federal Reserve’s third round of quantitative easing (QE3) by saying nobody knows what effect the policy will have.
Sargent, who is scheduled to give lectures on the global economy under the sway of the European debt crisis and inflation today in Taipei and tomorrow in Greater Taichung, said economists had no historical evidence with which to evaluate the effect of QE3 — a historically unprecedented policy.
“Honestly, I don’t know [if QE3 will effectively drive up the economy in the US],” Sargent told a press conference in Taipei yesterday.
If people look at what the Fed said in its announcement, it comes close to the same thing: It does not know if the policy will be effective, Sargent said.
On Thursday last week, the Fed announced it would begin buying US$40 billion in agency mortgage-backed securities every month starting the next day, as part of the US central bank’s QE3 program to boost the country’s economy.
The most important aspect of that announcement was that the Fed has committed to QE3 for as long as it takes, raising uncertainties on the time interval of the policy, Sargent said, adding that, for now, economists could only use untested theories to try to evaluate the policy.
In addition, it is more difficult to ascertain whether QE3 — which was one of the main reasons Taiwan suspended a planned increase in electricity rates that was originally scheduled to take effect in December — will have enough momentum to spur an economic recovery, Sargent said.
Sargent, 69, is a professor of economics at New York University and a senior fellow at the Hoover Institution of Stanford University. He shared last year’s Nobel Prize in economics with Christopher Sims of Princeton University.
The Nobel economics laureate called himself “a fiscally conservative, socially liberal Democrat,” while rejecting the label “non-Keynesian” or “right-wing.”