No more liquidity support: Advice from Raghuram Rajan and Viral Acharya

Their paper makes the point that creation of huge amounts of money by a central bank need not necessarily galvanise output.

The Monetary Policy Committee will meet this week. A former governor of the Reserve Bank of India (RBI)--Raghuram Rajan--and a former deputy governor--Viral Acharya--have written a paper (NBER paper number 29680) which ought to give the current governor and his deputy governor for economics a good feeling in case they are feeling like easing up on their liquidity policy. 

The title of the Rajan-Acharya paper is provocative and even poetic: “Liquidity, Liquidity Everywhere, Not a Drop to Use — Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity”. 

But it’s not a paper to be read by the