A number of studies employing New Keynesian models – the standard type of macroeconomic models employed to analyze monetary policy issues – have sought to incorporate various kinds of financial market imperfections to examine the impact of such quantitative easing. 6 However, I think that to date it is not sufficiently clear under what circumstances and through which mechanisms quantitative easing is effective.
In fact, former Fed Chairman Bernanke has quipped that “[t]he problem with QE is it works in practice, but it doesn’t work in theory.” Given that different countries and regions have different financial systems, I think that when examining the impact of quantitative easing it is necessary not only to focus on the financial markets in which large-scale asset purchases are conducted but also to explicitly take into account such differences, for example in the transmission mechanisms in the financial systems.