militate against growth. government borrowing is not bad per se, but excessive borrowing is. there is therefore a need to cap total public debt as a proportion of gdp. what is equally important in respect of fiscal management is the quality of public expenditure. if the government borrows and squanders that money away on unproductive current expenditure, both fiscal sustainability and growth would be jeopardized. governments need to spend on merit goods and public goods, in particular on improving human and social capital and on physical infrastructure. so, after all this discussion, what is the answer to the question : does the pursuit of the new trilemma militate against growth? no. it does not. but there could be some trade - offs and governments will have to tailor their policies to ensure that the benefit – cost calculus is always maximised. question 4 : what are the limits to unconventional policy measures? as the crisis exploded with brutal intensity and depth, central banks around the world acted with an unusual show of policy force, ferociously cutting policy rates to near zero or even zero. realizing soon that this was not sufficient to restore calm and confidence to the markets, they had to follow up the conventional measures with a slew of unconventional measures variously described as quantitative and credit easing. the first wave of unconventional measures was aimed at providing liquidity to the system either by way of collateralized loans through the repo window or outright purchase of bonds. liquidity management is of course standard monetary policy procedure. what made this unconventional were mainly two things. the first was the quantum of operations. the volumes were large, and were aimed at flooding the market with liquidity, much beyond what is expected in normal times. the second characteristic that made liquidity infusion unconventional was the relaxation of standards regarding the type of bonds bought under the omos. in this regard, different central banks relaxed regulations to different extents. while the bank of england stuck to treasuries, the fed bought federally backed mortgage bonds in addition to treasuries. the bank of japan went further buying also corporate bonds, commercial paper, exchange traded funds and real estate investment trusts. the second wave of unconventional measures went beyond repo operations and omos. the bank of japan extended targeted loans to banks to spur long term investment. the fed supplemented two rounds of qe with “ operation twist ” – of purchasing longer term treasuries against sale of short - term treasuries in an effort to depress

bernanke stood out was that he used qe far more aggressively than the boj ever did, introducing innovations as he went along. qe became “ credit easing ” when private assets were bought to stabilize financial markets, followed by another unconventional move – “ operation twist ” – to intervene directly at the long end of the yield curve with offsetting interventions at the short - end. the latest version of qe, as we all know, is an open ended commitment to purchase mortgage backed securities at the rate of $ 40 billion per month for as long as the “ labour market does not improve substantially ”. qe, in all its variations, was able to halt the downward deflationary spiral by making up for the declining velocity of money caused by deleveraging. it kept sovereign borrowing rates bis central bankers ’ speeches low in the face of a market revolt. it helped clean up the balance sheets of stressed financial institutions through cheap funding. the recovery from the great recession was relatively quick ; at least that was how it seemed through the “ green shoots ” of 2010. now, of course, we are no longer so sure. the limitations of macroeconomic techniques honed through deconstructing the great depression, the inflationary seventies and the great moderation are there for all to see. quite understandably, therefore, qe has its critics. it may be relevant to recall some of the criticism. criticism of qe the main criticism has been that qe is being continued beyond its usefulness. what the us economy requires now is a fiscal stimulus, and further qe is no substitute for a fiscal stimulus. it would only stoke inflationary pressures down the line. a second criticism, in fact a corollary to the first one, has been the argument that stretching monetary policy to unconventional levels has obliterated the firewall between fiscal and monetary policies, with monetary policy increasingly becoming an extension of fiscal policy, thereby renewing concerns about the fiscal dominance of monetary policy. third, whereas fiscal stimulus leads to higher taxes down the line, the combination of zerobound interest rates and qe is an immediate tax on savers, who in effect finance the stimulus. this tax on savings should induce people to consume and invest more, and save less. but with impaired balance sheets, they are possibly saving even more. given this outcome, some have questioned the circumstances under which and the extent to which qe can trigger a virtuous cycle of demand for and supply of credit to