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Risques et conséquences d’atteindre la borne inférieure du taux d’intérêt nominal de court terme

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  • Bernard Babineau
  • Claude Lavoie
  • Nicolas Moreau
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    Abstract

    This paper examines the implications of the zero bound on nominal interest rates on the central bank’s ability to stimulate the economy during downturns. The analysis is conducted using a reduced-form rational expectation macro model of the Canadian economy. We make use of stochastic simulations to observe economic outcomes under alternative assumptions concerning the targeted inflation while imposing a zero bound constraint on the nominal interest rates. In general, our results suggest that an inflation target of one percent or less increase dangerously the probability of observing a liquidity trap. A reduction in the inflation rate increases the probability that nominal interest rates reach zero. With zero nominal interest rates, the capacity of the monetary policy to stimulate the economy is significantly reduced. A low inflation target thus raises the risk of being in a recession more often and for longer periods of time than otherwise. Finally, we demonstrate that the fiscal authority can compensate the lack of efficacy of the central bank but the cost associated with this kind of intervention is not negligible. Ce travail examine les risques et les conséquences de se retrouver dans une situation où l’efficacité de la politique monétaire est contrainte par le niveau plancher des taux d’intérêt nominaux. L’analyse est effectuée à l’aide d’un modèle à économie ouverte dans lequel les anticipations sont rationnelles. Ce modèle est simulé de façon stochastique sous différents régimes d’inflation en imposant une contrainte de non-négativité du taux d’intérêt nominal. En général, nos résultats indiquent que les risques et les conséquences néfastes de tomber dans un piège à liquidités augmentent dangereusement lorsque le taux d’inflation cible diminue au-dessous de 1 pour cent. Une réduction du taux d’inflation augmente la probabilité que les taux nominaux à court terme atteignent zéro. Avec des taux nominaux de zéro, la capacité de la politique monétaire de stimuler l’économie est fortement réduite. Par conséquent, l’ampleur et la fréquence des périodes de faible activité économique augmentent à mesure que l’inflation diminue. Enfin, il est démontré que les autorités fiscales peuvent toujours intervenir pour compenser la perte d’efficacité de la politique monétaire mais les coûts fiscaux associés à une telle intervention ne sont pas négligeables.

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    Bibliographic Info

    Paper provided by Department of Finance Canada in its series Working Papers-Department of Finance Canada with number 2001-22.

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    Handle: RePEc:fca:wpfnca:2001-22

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    Cited by:
    1. Claude Lavoie & Hope Pioro, 2007. "The Zero Bound on Nominal Interest Rates: Implications for the Optimal Monetary Policy in Canada," Discussion Papers 07-1, Bank of Canada.

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