Hail Mary Economics: the theoretical model behind unconventional monetary policies

Abstract

As the era of negative interest rates continues, at least for the time being, it is a topic worth reflecting upon, especially in an attempt to understand its theoretical roots, and particularly in light of a possible upcoming slowdown in economic activity in the US and elsewhere (at the time of writing). This paper examines the evolution of monetary policy since the crisis, and focuses on so-called unconventional policies like Quantitative Easing (QE) and negative interest rates, arguing that from a theoretical, albeit neoclassical, perspective, both policies are related and based on the same money-multiplier model.