An expansionary monetary policy consists in replacing bonds with money in economic agents’ portfolios

To conduct an expansionary monetary policy and drive down interest rates, a central bank buys bonds and pays by creating money. The expansionary monetary policy therefore results in the replacement of bonds with money in the asset portfolios of economic agents other than the central bank. This means that an expansionary monetary policy will have an effect if the substitution of money for bonds in economic agents’ portfolios changes the behaviour of these economic agents: This will probably be the case if long-term interest rates are quite high. The replacement of bonds with money will then lead economic agents to try to lift the return on their portfolios by investing in riskier assets (equities, real estate, etc.); But if long-term interest rates are very low, as is the case at present, bonds and money are highly substitutable. Holding money instead of bonds then has no effect on behaviour, and the expansionary monetary policy becomes ineffective .