QE3 won't cause sudden inflation: Nobel laureate
October 25, 2012, 12:10 am TWN
TAIPEI--The third round of quantitative easing (QE3) in the United States in mid-September will not have an immediate inflationary effect on smaller economies such as Taiwan, visiting Nobel Economics prize winner Christopher Sims said yesterday.
QE3 is an attempt to stimulate demand in the United States, Sims said, adding that the slump in the U.S. economy has been a problem for smaller and open economies because there has been less demand for their exports in the U.S.
However, smaller economies should welcome the attempt to speed up the U.S.' recovery to increase its import demand, he said at a press conference in Taipei.
"The fear I think people have is that the monetary policy's extension might generate inflation and hence exchange devaluation without producing a recovery," Sims said when asked about the potential inflation in Taiwan that may be caused by QE3.
The American economist said he believed that QE3 is unlikely to create inflation unless it produces a recovery. The U.S. has had low inflation and interest rates for a long time, Sims noted.