Thread by @VMRConstancio

This is the crucial issue, questioning the mainstream belief that monetary policy can do eveything and that fiscal policy should be totally passive. Unconventional monetary policy was effective to mitigate the crisis and to start a recovery. A new downturn questions its limits

https://twitter.com/lhsummers/status/1164490326549118976

The interest rate (or cost of capital) channel, shows diminishing returns and the expectations channel cannot by itself significantly move the economy. So, CB promises in the context of price level targeting or long term averaging of inflation don’t work. We need fiscal policy.

The exchange rate channel could only lead to currency wars that are destructive and self-defeating. Forward guidance depends on the expectations channel. QE was effective to lower yields when policy rates were near zero, still works, but also with diminishing returns.

Negative policy rates can be tweaked but cannot go down much further for the well-known reasons that @LHSummers sums up quite well