Does Ample Money Creation Stimulate Recovery?

Abstract

Financial conditions in Western countries are to a large extent determined by policy, or the lack of it, and thus by governments and the central banks. In line with the theme of the symposium I would like today to present a few reflections on this subject, and in particular on the role of money. I shall start by looking at the financial repercussions of the recession on industry. This is important in order to be able to consider the development of money supply further on. I shall then discuss the reaction of the monetary authorities to the recession and briefly consider why interest rates have remained high despite ample money creation. I will then show how policy can in fact contribute to a substantial reduction in interest rates. Finally I shall answer the question whether an accommodating monetary policy can be considered capable of stimulating economic recovery.