Monetary Policy in a Low‐Interest‐Rate Environment

Abstract

I appreciate this opportunity to discuss aspects of quantitative easing (QE)with some former central bank colleagues on this panel. Today’s topic is monetary policy in a low‐interest‐rate environment. For the Federal Reserve, whichwill bemymain focus, thatmeansQE because the federal funds rate has already been effectively brought to zero. My presentation today will have three parts. First, I will discuss the channels through which QE works, because that sets up a basis to evaluate the policy. Second, andwhatmay sound ironic, Iwill explainwhyQE is hard to quantify. That will say something about the ways central banks operate and about the current state of economics and finance. Finally, I shall discuss the risks associated with QE. This will highlight the importance of having an exit strategy. In that regard, this discussion should not be viewed as relevant exclusively to the Federal Reserve.Any central bank confident in its ability to exit might be more willing to enter a period of very low interest rates.