"Welcome to planet ZIRP. Unfortunately, we do not have a handbook, or fully understand the terrain. Our process of quantative easing, the plan to helicopter money may work but as a fire fighting option, it may be like dropping water into a desert, such are the fissures in the financial system."
This was the basis of the original post earlier this week Since Bernanke’s own paper has come to light “Monetary Policy Alternatives at the zero bound”. Rather worryingly Bernanke concludes :
“Despite our evidence that alternative policy measures have some effect, we remain cautious about relying on such approaches. We believe that our findings go some way to refuting the strong hypothesis that nonstandard policy actions, including quantitative easing and targeted asset purchases, cannot be successful in a modern industrial economy. However, the effects of such policies remain quantitatively quite uncertain”. 2004
OK so it’s official, the effects of such policies remain quantitively quite uncertain. We don’t have a hand book or fully understand the terrain. We cannot be sure this is going to work at all. Gulp.
This is your captain speaking, Welcome on board flight QE 2009. I hope you have a nice flight, I am relatively new at this, haven’t actually flown before, we shall be flying by the seat of our pants but have every confidence …..
Monetary Policy at the zero bound : Bernanke, Reinhart and Sack 2004