Staying unconventional

http://www.economist.com/news/finance-and-economics/21599355-new-research-suggests-central-bankers-should-be-bolder-and-more-innovative-staying

The Federal Reserve announced on March 19 that it would cut bond purchases by $10 billion to $55 billion next week. This latest announcement prompted increased interest in a set of papers on monetary policy that argue the "unconventional" policy of bond purchases when interest rates are low may not be as unconventional as we once thought. 

Much of the concern over QE stems from the mid-2000's when interest rates were so low that banks and life insurance companies took on more risk in order to hit their yield targets. The first paper, by Gabriel Chodorow-Reich of Harvard University contends that this is not an appropriate reason to slow down QE.

The second paper, by Joshua Hausman of the University of Michigan and Johannes Wieland of the University of California, San Diego argues that Japan’s latest round of monetary policy has “big upside.” They believe that as much as one percent of Japan’s GDP growth is a direct result of monetary policy.

The final paper, Kevin Sheedy of the London School of Economics urges central banks to consider replacing their inflation target with a nominal-GDP target. The author believes that debt, as a percentage of income is an important metric in determining the strength of the household balance sheet. As debt ratios have increased over the past few decades we should focus on an NGDP target in order to keep debt to GDP stable.