Equities | Europe | Monetary Policy & Inflation
Recently in the FT Rick Rieder, a BlackRock executive, called for the ECB to begin purchasing equities as part of its QE program, sparking new debates around the invasiveness of Central Banks. He was accused outright of a conflict of interest, though, because he’d probably benefit from the idea. Others point out that such equity purchases distort price signals and the ‘invisible hand’, and won’t do much to fix the structural issues at play in the Eurozone. In this blog piece, Roger Farmer offers some support for Rieder.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
(You can read the article by clicking here)
Recently in the FT Rick Rieder, a BlackRock executive, called for the ECB to begin purchasing equities as part of its QE program, sparking new debates around the invasiveness of Central Banks. He was accused outright of a conflict of interest, though, because he’d probably benefit from the idea. Others point out that such equity purchases distort price signals and the ‘invisible hand’, and won’t do much to fix the structural issues at play in the Eurozone. In this blog piece, Roger Farmer offers some support for Rieder. He argues that while asset markets do well at allocating capital across industries, they are inefficient when it comes to allocating it across time. Plenty of theoretical and empirical research documents the usefulness of a policy tool that controls the share prices of a European index fund. Farmer suggests it as a complement to the conventional interest rate tweaks.
Why does this matter? So far, much of the debate around ECB policy has revolved around further QE or deeper rate cuts into negative territory, but it could make sense to try something different like buying equities. Moreover, the BoJ has already done it and it could also boost efforts to create a capital union in the EU.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)