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Robust Monetary Policy Under Uncertainty About the Lower Bound

Author

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  • Tillmann Peter

    (Department of Economics, Justus-Liebig-University Gießen, University of Giessen, Gießen, Germany)

Abstract

Central banks face uncertainty about the true location of the effective lower bound (ELB) on nominal interest rates. We model optimal discretionary monetary policy during a liquidity trap when the central bank designs policy that is robust with respect to the location of the ELB. If the central bank fears the worst-case location of the ELB, monetary conditions will be more expansionary in the period before the liquidity trap.

Suggested Citation

  • Tillmann Peter, 2021. "Robust Monetary Policy Under Uncertainty About the Lower Bound," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(1), pages 309-321, January.
    • Handle: RePEc:bpj:bejmac:v:21:y:2021:i:1:p:309-321:n:4
    DOI: 10.1515/bejm-2019-0077
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    References listed on IDEAS

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    Cited by:

    1. Christian Grisse, 2023. "Lower Bound Uncertainty and Long‐Term Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(2-3), pages 619-634, March.

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    More about this item

    Keywords

    discretion; liquidity trap; optimal monetary policy; robust control; uncertainty;
    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
    • 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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