“The zero lower bound on short-term interest rates is not a problem, since the central bank can just use quantitative easing to lower intermediate and longer-term interest rates instead.” Is this statement true,false, or uncertain? Explain.

This statement can be considered as both true and false, depending on the context and perspective.

True: The zero lower bound (ZLB) on short-term interest rates can indeed be a problem for central banks as it limits their ability to stimulate the economy through conventional monetary policy tools. However, it is true that central banks can resort to unconventional monetary policy tools such as quantitative easing (QE) to lower intermediate and longer-term interest rates. QE involves the central bank buying large amounts of government bonds and other financial assets, which increases the money supply and puts downward pressure on interest rates across different maturities. This can stimulate economic activity by making borrowing cheaper for businesses and households.

False: While QE can help to lower interest rates, it is not a perfect substitute for conventional interest rate policy. First, QE can lead to distortions in financial markets and risk creating asset price bubbles. Second, the effectiveness of QE in stimulating economic activity is uncertain and can depend on a range of factors, including the state of the economy and the health of the banking sector. Third, QE can also create political and public relations challenges for central banks, as it can be seen as a form of 'money printing' that risks causing inflation in the long run.

Therefore, while the central bank can use QE to lower intermediate and longer-term interest rates when the ZLB is a problem, it is not a straightforward or risk-free solution.