The Zero Bound on Interest Rates and Optimal Monetary Policy
AbstractThis paper considers the consequences for monetary policy of the zero floor for nominal interest rates. The zero bound can be a significant constraint on the ability of a central bank to combat deflation. The paper shows, in the context of an intertemporal equilibrium model, that open-market operations, even of "unconventional" types, are ineffective if future policy is expected to be purely forward looking. However, a credible commitment to the right sort of history-dependent policy can largely mitigate the distortions created by the zero bound. In the model, optimal policy involves a commitment to adjust interest rates so as to achieve a time-varying price-level target, when this is consistent with the zero bound. The paper also discusses ways in which other central bank actions, although irrelevant apart from their effects on expectations, may help to make a central bank's commitment to its target more credible.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.
Volume (Year): 34 (2003)
Issue (Month): 1 ()
Contact details of provider:
Postal: 1775 Massachusetts Ave NW, Washington DC 20036
Phone: (202) 797-6000
Fax: (202) 797-6004
Web page: http://www.brookings.edu/economics.aspx
More information through EDIRC
macroeconomics; Zero Bound; Interest Rates; Optimal Monetary Policy;
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Bernanke: Monetary Policy and the Housing Bubble
by Mark Thoma in Economist's View on 2010-01-03 20:06:00
- Monetary Policy and the Housing Bubble
by Guest Author in the big picture on 2010-01-04 11:00:02
- Eggertsson/Woodford and Forward Guidance
by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2012-09-14 16:10:00
- Le pÃ©ril des cibles nominales
by ? in D'un champ l'autre on 2014-01-11 12:10:00
- La trappe Ã sÃ»retÃ©
by ? in D'un champ l'autre on 2014-02-24 23:59:00
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading lists or Wikipedia pages:
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eric Encarnacion).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.