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Is the Monetary Transmission Mechanism Broken? Time for People's Quantitative Easing

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  • Sebastian Dragoe
  • Camelia Oprean-Stan

Abstract

The monetary transmission channel is disrupted by many factors, especially securitization and liquidity traps. In our study we try to estimate the effect of securitization on the interest elasticity and to identify if a liquidity trap occurred during 1954Q3-2019Q3. The yield curve inversion mechanism shows us that economic cycles are very sensitive to decreasing profitability of banks. However there is no evidence that restoring their profits will ensure a strong recovery. In this regard, we research the low effect of Quantitative Easing (QE) upon economic growth and analyze whether securitization and liquidity traps posed challenges to QE or is it the mainstream theory flawed. In this regard we will examine the main weaknesses of QE, respectively the speculative behavior induced by artificial low rates and its unequal distribution. We propose a new form of QE that will relief households and not reward banks for their risky behavior before recession.

Suggested Citation

  • Sebastian Dragoe & Camelia Oprean-Stan, 2025. "Is the Monetary Transmission Mechanism Broken? Time for People's Quantitative Easing," Papers 2501.06575, arXiv.org.
    • Handle: RePEc:arx:papers:2501.06575
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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