Working Paper: NBER ID: w25455
Authors: Michael D. Bordo; Andrew T. Levin
Abstract: If the global economy encounters another severe adverse shock in coming years, will major central banks be able to provide sufficient monetary stimulus to preserve price stability and foster economic recovery? Our empirical analysis indicates that the Federal Reserve’s QE3 program was not an effective form of monetary stimulus and that unconventional monetary policies undertaken in the Eurozone and in Japan have been similarly limited in impact. We then consider how digital cash could bolster the effectiveness of monetary policy, and we characterize some potential steps for implementing digital cash via public-private partnerships between the central bank and supervised financial institutions. Our analysis indicates that digital cash could significantly enhance the stability of the financial system.
Keywords: digital cash; monetary policy; QE3; financial stability
JEL Codes: E42; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's QE3 program (E52) | U.S. nonfarm payrolls (J89) |
| Federal Reserve's QE3 program (E52) | GDP growth (O49) |
| Federal Reserve's QE3 program (E52) | core inflation (E31) |
| Unconventional policies in the Eurozone and Japan (E49) | core inflation (E31) |
| Digital cash (E42) | monetary policy effectiveness (E52) |
| Digital cash (E42) | monetary stability (E63) |