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The stochastic lower bound

Author

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  • Masolo, Riccardo

    (Bank of England)

  • Winant, Pablo

    (Bank of England)

Abstract

Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard zero lower bound model to study the effects of a stochastic lower bound (SLB) on policy rates. We find that a less predictable SLB helps keep inflation closer to target by lowering expectations of future values of the SLB when interest rate cuts are not an option.

Suggested Citation

  • Masolo, Riccardo & Winant, Pablo, 2018. "The stochastic lower bound," Bank of England working papers 754, Bank of England.
    • Handle: RePEc:boe:boeewp:0754
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    References listed on IDEAS

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    Cited by:

    1. Bonciani, Dario & Oh, Joonseok, 2023. "Monetary policy inertia and the paradox of flexibility," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).

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    More about this item

    Keywords

    Zero lower bound; DSGE;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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