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Forward guidance and quantitative easing at the Zero Lower Bound

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  • Chattopadhyay, Siddhartha

Abstract

This paper uses the Sims and Wu (2020) New Keynesian model to derive the optimal combinations of forward guidance policies and quantitative easing (QE) at the Zero Lower Bound. We also illustrate how a Taylor Rule, with an optimally chosen inflation target, implements forward guidance, when quantitative easing eliminates the financial friction. We find that the theorem for the Taylor rule implementation of optimal forward guidance in Chattopadhyay and Daniel (2018) is robust in the Sims and Wu (2020) New Keynesian model when QE completely eliminates the financial friction.

Suggested Citation

  • Chattopadhyay, Siddhartha, 2020. "Forward guidance and quantitative easing at the Zero Lower Bound," Economics Letters, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303694
    DOI: 10.1016/j.econlet.2020.109609
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    References listed on IDEAS

    as
    1. Siddartha Chattopadhyay & Betty C. Daniel, 2018. "Taylor-Rule Exit Policies for the Zero Lower Bound," International Journal of Central Banking, International Journal of Central Banking, vol. 14(5), pages 1-53, December.
    2. Eric Sims & Cynthia Wu, 2020. "Are QE and Conventional Monetary Policy Substitutable?," International Journal of Central Banking, International Journal of Central Banking, vol. 16(1), pages 195-230, February.
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    More about this item

    Keywords

    New-Keynesian model; Unconventional monetary policy; Optimal monetary policy; Zero Lower Bound;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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