10 We are prepared to use our micro- and macro-prudential instruments to face the risks of bubbles and excessive leverage, but if the lower bound were effectively abolished, those risks would increase and may lead to macroeconomic instability along this dynamically inefficient path. Third, we have to reflect on why we have reached the lower bound in the euro area in the first place.
This will be clear to those who have read Bob Woodward’s recent account of monetary policy making in the US in the 90’s. I suggest that it be read with professor Mankiw’s recent essay as a companion.