-Repeats Item 1st Transmitted Saturday
-Adds Detail To Version Transmitted At 1245 GMT
-BOE Dale: If QE Is Less Effective, Costs May Rise Compared To Benefits

DUBLIN (MNI) – Bank of England Chief Economist Spencer Dale has
argued against the simplistic view that if quantitative easing becomes
less effective then the dosage should be increased.

Dale says that policymakers must factor in the costs as well as the
benefits of QE, and if the benefits are diminishing the costs will
become proportionately greater.

In his speech here, Dale highlighted the risks associated with
ultra loose monetary policy.

“When you are thinking about policy strategy you need to recognise
there are costs as well as benefits,” he said in a question and answer
session following the speech.

“Sometimes one hears commentators say, ‘well, suppose QE has become
less effective. Don’t worry, just double it, If it has become half as
effective just double the dosage’.”

“In a world where there are no costs associated with a policy tool
that is an entirely, eminently sensible response but if there are costs
as well as benefits and those benefits become less and the costs don’t,
then suddenly … in terms of cost/benefit analysis it starts to become
a less attractive tool,” Dale said.

In his speech he talked about the tricky challenge of unwinding QE,
with the BOE holding some 40% of the outstanding gilt stock.

Dale voted against the last tranche of QE that was sanctioned at
the July meeting by the BOE Monetary Policy Committee.

In the Q and A, Dale also expressed deep skepticism about some of
the more radical forms of monetary stimulus – monetary financing, or the
‘helicopter drop’ of money, and setting negative interest rates.

He said monetary financing has been used in pejorative sense in
economic history but it was not necessarily a bad thing. In practice,
however, it would be highly problematic.

“It has some quite tricky things associated with it. One … is the
impact it will have … in terms of (policymakers’) credibility,” Dale
said,

“If you did do this (helicopter drop money) and it immediately led
to a sharp jump in inflation expectations you wouldn’t get any benefit
for the economy at all. You would just get a big price level effect,” he
said,

He said that, secondly, monetary financing would be a step into
unchartered waters and thirdly “by its very nature it is pretty hard to
reverse.”

He said monetary financing shouldn’t be condemned into the “evil,
you should never think about it bucket but, for me, it is in the bucket
of ‘I don’t really want to go there if I can help it’.”

–London Bureau; Tel: +44207 862 7491; email:
drobinson@marketnews.com

[TOPICS: M$$BE$]