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The effective lower bound: some implications for inflation dynamics beyond the current low interest rate environment

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  • Schmidt, Sebastian

Abstract

The fact that there is an effective lower bound (ELB) on nominal interest rates makes it more difficult for central banks to achieve their inflation objectives with conventional policy tools. This is the case not only in the current environment where policy rates are at, or close to, the ELB, but also when the economy has recovered and policy rates have risen above the ELB. JEL Classification: E31, E32, E52, E58

Suggested Citation

  • Schmidt, Sebastian, 2016. "The effective lower bound: some implications for inflation dynamics beyond the current low interest rate environment," Research Bulletin, European Central Bank, vol. 29.
    • Handle: RePEc:ecb:ecbrbu:2016:0029:
    Note: 2179645
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    References listed on IDEAS

    as
    1. Timothy S. Hills & Taisuke Nakata & Sebastian Schmidt, 2016. "The Risky Steady State and the Interest Rate Lower Bound," Finance and Economics Discussion Series 2016-9, Board of Governors of the Federal Reserve System (U.S.).
    2. Günter Coenen & Sebastian Schmidt, 2016. "The role of the ECB’s asset purchases in preventing a potential de-anchoring of longer-term inflation expectations," Research Bulletin, European Central Bank, vol. 25.
    3. Coenen, Günter & Schmidt, Sebastian, 2016. "The role of the ECB’s asset purchases in preventing a potential de-anchoring of longer-term inflation expectations," Research Bulletin, European Central Bank, vol. 25.
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    Cited by:

    1. repec:ecb:ecbrbu:2018:0045:1 is not listed on IDEAS
    2. Christina Anderl & Guglielmo Maria Caporale, 2023. "Forecasting inflation with a zero lower bound or negative interest rates: Evidence from point and density forecasts," Manchester School, University of Manchester, vol. 91(3), pages 171-232, June.
    3. Schmidt, Sebastian, 2018. "The effective lower bound and the desirability of gradual interest rate adjustments," Research Bulletin, European Central Bank, vol. 45.
    4. Silvia T. Trifonova, 2023. "New Trends In The European Central Bank Monetary Policy," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 17(1), pages 39-60.
    5. Eleni Argiri & Ifigeneia Skotida, 2021. "The 2021 review of the monetary policy strategy of the Eurosystem: an economy of forces," Economic Bulletin, Bank of Greece, issue 54, pages 23-57, December.

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    More about this item

    Keywords

    Deflationary Bias; Effective Lower Bound; Expectations; Monetary Policy; Risky Steady State;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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