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Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates

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  • McCallum, Bennett T

Abstract

This paper explores several issues concerning a possible zero lower bound (ZLB) including its theoretical rationale; the magnitude of effects of low sustained inflation on real interest rates; the validity of analyzing monetary policy in models with no monetary variables; and the dynamic stabilizing properties of Taylor rules in a ZLB context. The most important argument, however, is that if the short nominal rate is immobilized at zero, there nevertheless exists a route for monetary stabilization policy to be effective-via the foreign exchange market. Its quantitative importance is examined in a calibrated, optimizing, open-economy model.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 32 (2000)
Issue (Month): 4 (November)
Pages: 870-904

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Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:4:p:870-904

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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