A simple way to overcome the zero lower bound of interest rates for central banks: Evidence from the Fed and the ECB within the financial crisis
AbstractIn this paper, we investigate how Fed and ECB monetary policy changed within the financial crisis of 2007-2010. We argue that due to the very low interest rates classical monetary policy rules like, e.g., the Taylor rule could lead to false conclusions. We propose a new way of conducting monetary policy when the zero lower bound becomes binding via shaping the inflation expectations. Our results indicate that using this modified Taylor rule shows similar tendencies in the reaction coefficients as the standard Taylor rule at least if no interest smoothing term is included.
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Bibliographic InfoArticle provided by Inderscience Enterprises Ltd in its journal Int. J. of Monetary Economics and Finance.
Volume (Year): 4 (2011)
Issue (Month): 3 ()
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Web page: http://www.inderscience.com/browse/index.php?journalID=218
financial crisis; Federal Reserve; European Central Bank; quantitative easing; inflation expectations; Taylor rule; zero lower bound; interest rates; central banks; monetary policy.;
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- Ansgar Belke & Jens Klose, 2012.
"Modifying Taylor Reaction Functions in Presence of the Zero-Lower-Bound: Evidence for the ECB and the Fed,"
Discussion Papers of DIW Berlin
1218, DIW Berlin, German Institute for Economic Research.
- Ansgar Belke & Jens Klose, 2012. "Modifying Taylor Reaction Functions in Presence of the Zero-Lower-Bound – Evidence for the ECB and the Fed," ROME Working Papers 201203, ROME Network.
- Ansgar Belke & Jens Klose, 2012. "Modifying Taylor Reaction Functions in Presence of the Zero-Lower-Bound – Evidence for the ECB and the Fed," Ruhr Economic Papers 0343, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Belke, Ansgar & Klose, Jens, 2013. "Modifying Taylor reaction functions in the presence of the zero‐lower‐bound — Evidence for the ECB and the Fed," Economic Modelling, Elsevier, vol. 35(C), pages 515-527.
- Ansgar Belke & Jens Klose, 2011. "Does the ECB Rely on a Taylor Rule During the Financial Crisis? Comparing Ex-post and Real Time Data with Real Time Forecasts," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(2), pages 147-171, September.
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