To believe that QE is not a useful tool "is unjustified". The president of the ECB, Mario Draghi in a speech at the Lindau Nobel Laureate Meeting, defends the policies of Quantitative easing. “Economic research has evolved into thinking about how central banks should respond to an emerging crisis, particularly when their standard tools of monetary policy, namely short-term interest rates, reach their lowest margin. . It is possible to intervene through a further reduction in short-term interest rates and the policy becomes no longer standard. One option is to rely on forward-looking guidance, i.e. to promise to keep interest rates low in the future,” Draghi said.
But, he continues, “recent research has shown that its effectiveness can be improved if combined with other non-standard monetary policies. Research in academia and central banks has therefore re-examined alternative monetary policy tools, including so-called quantitative easing (QE) policies. And here the recently developed models came in handy. Previous studies based on the assumption of frictionless financial markets concluded that Qe is completely ineffective. But the focus on financial frictions made it clear that this conclusion is unjustified, once it is recognized that financial intermediaries are subject to leverage constraints.
