Can quantitative easing be effective?

OECD countries are emerging from a period of quantitative easing. Can quantitative easing be effective? In the traditional theory, the answer is no. Quantitative easing consists in replacing bonds in private investors’ portfolios with money (the central bank buys bonds by creating money). This drives down long-term interest rates to a point where investors are indifferent between holding money or bonds. At equilibrium, this substitution of money for bonds has no effect ( this is equivalent to the Modigliani-Miller theorem). For quantitative easing to have a positive effect, one needs to assume that there are imperfections, for example: Economic agents have a higher prope nsity to consume money than bonds. Quantitative easing then boosts domestic demand; The central bank does not trigger speculative attacks by selling bonds, unlike private investors. Quantitative easing then reduces the likelihood of a financial crisis.