Why Monetary Policy has Been Comparatively Ineffective?

type="main"> Never before in any previous crisis has monetary policy responded with such aggressive expansion. Not only have short-term policy rates been cut to zero, but the monetary base, and even more so commercial bank reserves, have been increased hugely. Yet bank lending to the private sector and the broad money supply have stagnated, and the recovery has been weak. While the prior level of bank equity was patently too low, the way in which the regulatory requirements for higher equity ratios have been introduced encouraged deleveraging, especially via reductions in cross-border lending. Much more thought should have been given both to the incentives that bank CEOs faced and to the appropriate mechanisms for raising additional bank equity.