“Conventional and Unconventional Monetary Policy with Endogenous Collateral Constraints” (gulp)

That’s the title of a new paper by Michael Woodford of Columbia.  Woodford has been one of the more important economic voices regarding the use of QE during the crisis.

The always smart David Andolfatto has a nice interview with Woodford discussing the paper and his thoughts.  Here’s a basic summary:

• It’s not a paper that claims to have given anything like a complete analysis of the situation that we’re currently in. It’s more an exploration of some important considerations and how they’re connected to each other.
• Even when asset purchases might have useful effects, one should ask how far it is useful to go with them, because even in the cases where there are beneficial effects of shifting some risk of a certain side on the central bank’s balance sheet, it definitely doesn’t mean that then shifting more and more of it can only be better.
• I think there are real questions about how far you would want to go down that path.

Here’s what I found really interesting:

• Woodford appears extremely skeptical about the efficacy of QE after all this time.   It’s amazing that, after 5 years of this, the smartest people still don’t seem to have a full grasp on QE’s wide ranging and questionable effects.
• Woodford stresses the point that more and more QE might not be the ideal approach in an environment where the private sector holders of these assets don’t necessarily want to see their options relegated to those that the Central Bank determines.
• Woodford emphasizes the importance of fiscal policy and the idea that more and more QE gives the appearance that the Central Bank has everything under control which actually reduces the need for fiscal policy.

Go check it out.  It’s a little wonky, but interesting.