How can QE help the economy?

The Federal Reserve chairman Ben Benanke's latest speech has made it clear that both the current high unemployment rate around 10% and low inflation rate are inconsistent with the Fed's dual mandate. Therefore further action is appropriate.

Another round of "quantitative easing" (QE) is now widely expected by the market. How much and exactly in what form remain to be seen.

Has QE been successful? How does it help create jobs? Why do we need more large-scale asset purchase by the central bank? Should the Fed be even more aggressive?

Here is an old paper by Joseph Gagnon at the Peterson Institute for International Economics that helps answer some of these timely questions.