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The risky steady state and the interest rate lower bound

Author

Listed:
  • Schmidt, Sebastian
  • Nakata, Taisuke
  • Hills, Timothy

Abstract

Even when the policy rate is not at the effective lower bound (ELB), the possibility that the policy rate will become constrained by the ELB in the future lowers today JEL Classification: E32, E52

Suggested Citation

  • Schmidt, Sebastian & Nakata, Taisuke & Hills, Timothy, 2016. "The risky steady state and the interest rate lower bound," Working Paper Series 1913, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20161913
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    References listed on IDEAS

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    1. repec:oup:restud:v:85:y:2018:i:1:p:87-118. is not listed on IDEAS
    2. Fernández-Villaverde, Jesús & Gordon, Grey & Guerrón-Quintana, Pablo & Rubio-Ramírez, Juan F., 2015. "Nonlinear adventures at the zero lower bound," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 182-204.
    3. Luca Fornaro & Gianluca Benigno, 2015. "Stagnation Traps," 2015 Meeting Papers 810, Society for Economic Dynamics.
    4. S Borağan Aruoba & Pablo Cuba-Borda & Frank Schorfheide, 2018. "Macroeconomic Dynamics Near the ZLB: A Tale of Two Countries," Review of Economic Studies, Oxford University Press, vol. 85(1), pages 87-118.
    5. repec:bla:ecinqu:v:55:y:2017:i:4:p:1593-1624 is not listed on IDEAS
    6. Coenen Günter & Orphanides Athanasios & Wieland Volker, 2004. "Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-25, February.
    7. Lukasz Rachel & Thomas Smith, 2015. "Secular Drivers of the Global Real Interest Rate," Discussion Papers 1605, Centre for Macroeconomics (CFM).
    8. Gavin, William T. & Keen, Benjamin D. & Richter, Alexander W. & Throckmorton, Nathaniel A., 2015. "The zero lower bound, the dual mandate, and unconventional dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 55(C), pages 14-38.
    9. Richter Alexander W. & Throckmorton Nathaniel A., 2015. "The zero lower bound: frequency, duration, and numerical convergence," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(1), pages 1-26, January.
    10. Christiano, Lawrence J. & Fisher, Jonas D. M., 2000. "Algorithms for solving dynamic models with occasionally binding constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 24(8), pages 1179-1232, July.
    11. Taisuke Nakata, 2017. "Uncertainty at the Zero Lower Bound," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 186-221, July.
    12. Gust, Christopher J. & Lopez-Salido, J. David & Smith, Matthew E. & Herbst, Edward, 2012. "The Empirical Implications of the Interest-Rate Lower Bound," Finance and Economics Discussion Series 2012-83, Board of Governors of the Federal Reserve System (U.S.), revised Jan 2016.
    13. Olivier Coibion & Yuriy Gorodnichenko & Johannes Wieland, 2012. "The Optimal Inflation Rate in New Keynesian Models: Should Central Banks Raise Their Inflation Targets in Light of the Zero Lower Bound?," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1371-1406.
    14. Gavin, William T. & Keen, Benjamin D. & Richter, Alexander & Throckmorton, Nathaniel, 2013. "The stimulative effect of forward guidance," Working Papers 2013-38, Federal Reserve Bank of St. Louis, revised 30 Apr 2014.
    15. repec:aea:aecrev:v:107:y:2017:i:7:p:1971-2006 is not listed on IDEAS
    16. Armenter, Roc, 2013. "The perils of nominal targets," Working Papers 14-2, Federal Reserve Bank of Philadelphia, revised 04 Feb 2014.
    17. de Groot, Oliver, 2013. "Computing the risky steady state of DSGE models," Economics Letters, Elsevier, vol. 120(3), pages 566-569.
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    Citations

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    Cited by:

    1. Arias, Jonas E. & Erceg, Christopher & Trabandt, Mathias, 2016. "The macroeconomic risks of undesirably low inflation," European Economic Review, Elsevier, vol. 88(C), pages 88-107.
    2. Philippe Andrade & Jordi Galí & Hervé Le Bihan & Julien Matheron, 2017. "The optimal inflation target and the natural rate of interest," Economics Working Papers 1591, Department of Economics and Business, Universitat Pompeu Fabra.
    3. repec:ecb:ecbrbu:2018:0045:1 is not listed on IDEAS
    4. Nakata, Taisuke, 2016. "Optimal fiscal and monetary policy with occasionally binding zero bound constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 220-240.
    5. Sebastian Schmidt, 2016. "The effective lower bound: some implications for inflation dynamics beyond the current low interest rate environment," Research Bulletin, European Central Bank, vol. 29.
    6. repec:ecb:ecbrbu:2016:0029:1 is not listed on IDEAS

    More about this item

    Keywords

    liquidity trap; zero lower bound;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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