Discussions are ongoing among central banks as to what the significance of low interest rates will be for monetary policy and how the scope for monetary policy to act in economic slowdowns can be increased. One conclusion is that complementary monetary policy measures of the type used by many central banks in recent years, such as the purchasing of various assets, may become more common in the future. Other feasible measures in the monetary policy toolbox are loans directly to companies via banks, and foreign exchange interventions. 11 [13]  The new environment also affects other policy areas Another possibility is other policy areas being used more actively to stimulate the economy in times of recession. In the international debate, it has, for example, been said that the limitations imposed on monetary policy by the low interestrate environment mean that fiscal policy may need to contribute to stabilisation policy to a greater extent than before. 13 I think, to start with, that it is important to point out that monetary policy has not be exhausted as a result of the policy rate being lowered as far as is practically possible. As I just mentioned, there are several tools in the monetary policy toolbox that can be used if need be, in order to stimulate the economy. That said, there are obviously feasible tools in other policy areas as well.
Given the sharp drop in output during the recession and lackluster early recovery, GDP is currently below its potential by nearly 7 percent, or $ trillion dollars.1 Just prior to the recession, the unemployment rate averaged between 4-1/2 and 5 percent. It peaked at 10.1 percent during the recession and, as I just noted, is still 9.1 percent today. In terms of jobs, payroll employment is about 6-1/2 million below its pre-recession level. These are massive shortfalls in output and employment. It does not appear as if these gaps are going to be reduced significantly any time soon. Real GDP growth has been anemic so far this year. Gains in employment have slowed markedly. Even though credit conditions overall have been improving, many households and small businesses still seem to be having trouble getting credit. In addition, the repair process in residential real estate markets is painstakingly slow, and households are still in the process of paring debt and adapting to the huge losses in real estate and financial wealth that they experienced during the recession. I largely agree with economists such as Paul Krugman, Mike Woodford and others who see the economy as being in a liquidity trap: Short-term nominal interest rates are stuck near zero, even while desired saving still exceeds desired investment. This situation is the natural result of the abundance of caution exercised by many households and businesses that still worry that they have inadequate buffers of assets to cushion against unexpected shocks.