If the Reserve Bank cuts the Official Cash Rate to try and stimulate the economy...?

Question

But this does not work.. so the Reserve Bank keeps lowering and lowering the OCR until it reaches 1percent.. But still the economy is not stimulated by this. What does the Reserve Bank do?

p.s. Reserve Bank equivalent is Central Bank/Federal Reserve. OCR is the Reserve Banks interest rate they lend out to major banks.

Answer 1

Reserve bank can purchase gov bonds / T-bills from public, thus providing increase in monetary base M1. Another step could be reducing reserve requirements.

But actually all these tools will be only short-run solution, and also may be ineffective at all (due to liquidity trap effect, etc, so it is better to know more facts about current economy state and trends), thus monetary policy may be useless in some cases and should be accompanied or substituted by fiscal policy.

Also conclusion that it doesn't work may be wrong too - these measures may be helpfull and already acting as slowing down effect against harder consequences that would be without this monetary policy.