Basically, as the the rate of interest goes down, the demand for money increases (because it becomes cheap(er) to borrow). This is why when the economy tanks, central banks lower interest rates: cheap money encourages people / business to borrow and spend (thus increasing demand, and stimulating the economy).
However, at a certain point the demand for money becomes perfectly elastic. This is the generally when the interest rate is zero, which is where we were at from 2008 and for some years. The interest rates can't go negative (well, mathematically they can, but practically they generally don't (with some exceptions)).
This is called the zero lower bound, and once you're here, IS-LM says that you can print money without worrying about inflation too much:
Once you do see the economy recovering (through un/employment rates and inflation), you stop printing money and start increasing interest rates.
I know some people on HN like to rag on Krugman, but he was saying all of this over the last ten years, and has generally been correct. All of the above is fairly straight forward IS-LM (which he exposes).
The Great Recession has been pretty good as a "scientific" experiment to see whose predictions were accurate: turns out the demand-side Keynesians were pretty good, and the Chicago-school supply-side folks were not.
The IS-LM model has a phenomenon called the "(Hicksian) liquidity trap"
* http://people.ds.cam.ac.uk/mb65/library/boianovsky-2004.pdf
How it applies to quantitative easing (QE):
* https://pro.creditwritedowns.com/2010/10/on-liquidity-traps-...
Basically, as the the rate of interest goes down, the demand for money increases (because it becomes cheap(er) to borrow). This is why when the economy tanks, central banks lower interest rates: cheap money encourages people / business to borrow and spend (thus increasing demand, and stimulating the economy).
However, at a certain point the demand for money becomes perfectly elastic. This is the generally when the interest rate is zero, which is where we were at from 2008 and for some years. The interest rates can't go negative (well, mathematically they can, but practically they generally don't (with some exceptions)).
This is called the zero lower bound, and once you're here, IS-LM says that you can print money without worrying about inflation too much:
* https://en.wikipedia.org/wiki/Zero_lower_bound
Once you do see the economy recovering (through un/employment rates and inflation), you stop printing money and start increasing interest rates.
I know some people on HN like to rag on Krugman, but he was saying all of this over the last ten years, and has generally been correct. All of the above is fairly straight forward IS-LM (which he exposes).
The Great Recession has been pretty good as a "scientific" experiment to see whose predictions were accurate: turns out the demand-side Keynesians were pretty good, and the Chicago-school supply-side folks were not.