Nobody would have imagined that central banks could affect long-term interest rates and that the huge pool of liquidity wouldn’t stoke inflation. This assumption is being fundamentally challenged. It goes well beyond the monetary aspect. We are in a period where theory is lagging behind reality, as has already happened in the past. In recent years, monetary economics has progressed significantly.
For example, we have a substantial body of theoretical work on quantitative easing from Curdia, Woodford and others. We have also made a lot of progress in incorporating financial frictions into the models used by central banks. This began in the United States before spreading to Europe. It’s also an opportunity to revive monetary schools of thought that had disappeared.