Two situations where monetary expansion is ineffective

It is important to consider two situations that render monetary expansion (for example helicopter money) ineffective: A situation where demand for money increases, ex ante , as much as the money supply. An increase in the money supply is then absorbed by an increase in demand for money, without having any other effect on the economy. A situation where money and bonds are perfectly substitutable (bond yields are low and risk-free ). There is then a liquidity trap: the monetary expansion is absorbed by a rise in the value of bonds, without long-term interest rates moving significantly. It is likely that both configurations are currently present in OECD countries, which makes further monetary expansion very ineffective.