"Monetary policy works with a lag," said Mr. Reinhart, the former top Fed official.
Monetary policy works best when the Fed cuts interest rates, giving banks a good opportunity to extend more loans.
In many countries short-term interest rates are near zero and in a banking crisis monetary policy works less well.
Monetary policy works through many channels, but we can divide these channels into two broad categories: the mechanical and the psychological.
If monetary policy worked with the same lags as in the past, the world could look forward to a strong rebound next year.
Monetary policy works only with a lag, so whatever the ECB does on Thursday will be too late to prevent the recession deepening.
And if recession, or something close to it, is imminent, then by the usual reckoning, that monetary policy works only with a lag of 18 months or more, it is too late to do anything about it.
"When the Fed has reached the limits of expanding U.S. demand and monetary policy works primarily on the exchange rate, rather than on expanding spending, then it comes dangerously close to direct exchange-rate intervention," Mr. Rajan said.
