Walter Bagehot noticed once that -John Bull can stand many things, but he cannot stand two per cent.- Well, for several years, he has had to stand interest rates well below that, in some countries even below zero. However, despite this sacrifice, the economic recovery from the Great Recession has been disappointingly weak. This book-s aim is to answer this question.
The central thesis of the book is that the standard understanding of the monetary transmission mechanism is flawed. That understanding adopts erroneous assumptions-such as, that low interest rates always stimulate economic growth by boosting the credit supply, investment, and consumption-and does not fully take into account several unintended channels of monetary policy, such as risk-taking, high level of debt, or zombification of the economy. In other words, the effectiveness of monetary policy is limited during economic downturns accompanied by the debt overhang and the balance sheet recession, and generates neg
