Papadia, Francesco, Giuseppe Daluiso.
The short answer is: into the liquidity trap[1].
The longer answer starts from two quotations from Milton Friedman, which give the essence (but not the subtleties) of monetary policy as it stood before the Neo-Wicksellian school concluded that prices, in the guise of interest rate, not quantities, as monetary aggregates, are the alpha and the omega of monetary policy:
1. “…the links between Reserve action and the money supply are sufficiently close, the effects occur sufficiently rapidly, and the connections are sufficiently well understood, so that reasonably close control over the money supply is feasible, given the will.”
(page 89, Friedman, 1960)
2. “No substantial movements in the price level within fairly short periods have occurred without movements in the same direction in the stock of money, and it seems highly dubious that they could. Over long periods, changes in the stock of money can in principle offset or reinforce other factors sufficiently to dominate trends in the price level.”
(Page 86, Friedman, 1960)
Even if the neo-Wicksellian school is in the ascendance, the two ideas in the two quotations have not lost their appeal, for economists and policy makers as well as for the layman [2]. In the first quotation one finds the basic idea that a central bank can control the money supply through the supply of reserves or base (or, more evocatively, high powered) money [3]. In the second quotation one finds the other basic idea that there is a long-term relationship between the development of an appropriately chosen monetary aggregate and inflation.
Πηγή: Bruegel