Monetary Policy When Interest Rates Are Bounded At Zero
AbstractThis paper assesses the importance of the zero lower bound on nominal interest rates for the interest-rate channel of monetary policy. We simulate several interest-rate setting policy rules with either high or low inflation targets. We determine the extent to which the zero bound prevents real rates from falling, thus cushioning aggregate output in response to negative spending shocks. For small temporary and large permanent shocks, the output path with zero inflation lies modestly below that for higher inflation. For large shocks persisting a few quarters, differences in output paths across high- and low-inflation scenarios can be larger. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Bibliographic InfoArticle provided by MIT Press in its journal The Review of Economics and Statistics.
Volume (Year): 79 (1997)
Issue (Month): 4 (November)
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Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Jeff Fuhrer & Brian Madigan, 1994. "Monetary policy when interest rates are bounded at zero," Working Papers in Applied Economic Theory 94-06, Federal Reserve Bank of San Francisco.
- Jeffrey Fuhrer & Brian Madigan, 1994. "Monetary policy when interest rates are bounded at zero," Working Papers 94-1, Federal Reserve Bank of Boston.
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- repec:nbr:nberre:0126 is not listed on IDEAS
- Taylor, John B, 1980.
"Aggregate Dynamics and Staggered Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 88(1), pages 1-23, February.
- David E. Lebow, 1993. "Monetary policy at near-zero interest rates," Working Paper Series / Economic Activity Section 136, Board of Governors of the Federal Reserve System (U.S.).
- Anderson, Gary & Moore, George, 1985. "A linear algebraic procedure for solving linear perfect foresight models," Economics Letters, Elsevier, vol. 17(3), pages 247-252.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
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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
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