How can it work ? On the impact of quantitative easing in the eurozone

How can quantitative easing (QE) work in the Eurozone (EZ)? We model the EZ as the aggregate of two countries characterised by New Keynesian output and inflation equations with a Tobinian money market equation that determines each country's interest rate as a spread above the common policy rate. High spreads determine negative output gaps and deflationary pressure. With the ECB policy rate at the zero lower bound, QE expands money supply throughout the EZ. We show that QE, if large enough, can indeed be effective by reducing country spreads and the ensuing output gaps. However, zero output and deflation gaps can be obtained for the EZ on average, but not for all single countries unless fully symmetric conditions are met. Therefore fiscal accommodation at the country level should also intervene, and we conclude that the coordination of fiscal and monetary policies is of paramount importance.