That experience also suggests that QE does put additional downward pressure on both interest rates and the exchange rate. In considering the case for QE, we would need to balance these positive effects with possible side-effects. We would also need to consider the effects on market functioning.
The economy was overheated and the financial environment was overly accommodative, having increased the inflation expectations of households and firms. In fact, the rate of annual wage increases exceeded 20 percent in 1973. Against this background, a surge in crude oil prices increased inflation expectations further, making matters even worse.