- "When the economy becomes very weak, short-term interest rates draw close to zero, and monetary policy has to change its instruments and method of action, since interest rates can no longer be cut. Economic literature suggests several approaches:
• a (depreciated) exchange rate target and currency interventions,
• a target of price level, not price growth,
• reduction in long-term interest rates (via central bank purchases of bonds),
• central bank purchases of private-sector securities (quantitative easing or credit easing),
• quantitative easing (increasing the monetary base and banks’ excess reserves)."
- "Some central banks have used foreign exchange interventions (Switzerland); others bond purchases to lower long-term interest rates (United States, United Kingdom, and now the ECB); some qualitative easing (United States, ECB); and all have - explicitly or implicitly - used quantitative easing. But it seems almost inefficient (lack of upturn in credit or in demand via asset prices). This results from the fact that banks are not using their excess reserves, for several reasons."
Natixis Flash Economics 346 20100705
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