There was an interesting article in which originated on Bloomberg which Nouriel Roubini said that the ECB should cut rates to 0% and increase quantitative easing to ease dysfunctional markets. I agree that a more accommodative approach would be beneficial, but a base rate of zero would likely not make much of a difference except on the margin.
The idea of a Central Bank is that they really wear two hats, there is a fiscal v.s. monetary balance to be struck, sometimes they act monetarily, other times fiscally depending on the inflation expectation. The best explanation I have seen of this so far is offered by PIMCO’s Paul McCulley where he states that ‘as the game changes so does the meaning of central bank independence’ and he is correct, if disinflation or deflation is a threat then priming the fire for some inflation is the correct approach, but you would be far better doing this with the money supply via quantitative easing than on the …