Central bankers should be explicit about the purpose and effectiveness of quantitative easing
is dominated by short-term considerations about the need for stimulus. Yet there is only weak evidence that accumulating or holding bonds helps economies much when, as now, financial markets are calm. The trouble is that investors have been encouraged to interpret decisions aboutas a signal about when central banks might raise interest rates, a policy whose effects are more tangible. The resulting sensitivity of interest-rate expectations toannouncements makes the policy hard to unwind.
Being explicit about which tools serve what purpose, and playing down the perceived link between bond-buying and interest rates, would let central banks unwind’s long-term downsides, of which there is growing awareness. One danger about whichhas long warned is that bloated central-bank balance-sheets are a threat to the stability of the public finances. Purchases of long-term bonds are paid for by creating central-bank reserves—electronic cash which carries a floating rate of interest .
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