For instance, if the interest rate sensitive segments of the economy are constrained by existing debt, lower rates may have little effect on enhancing domestic demand, but continue to have demand switching effects through the exchange rate.
Similarly, the unconventional “quantitative easing” policy of buying assets such as long term bonds from domestic players may certainly lower long rates but may not have an effect on domestic investment if aggregate capacity utilization is low. Indeed, as argued earlier, savers may respond to the increased distortion in asset prices by saving more.