Question: In 2002, when the Fed reduced the discount rate to around 1%, some commentators became concerned that the interest rate was so low that the Fed's ability to conduct monetary policy might be compromised. But Ben Bernanke, then a Fed governor, suggested
As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero-its practical minimum-monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.
Do you agree? Why or why not?