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Unconventional monetary policy: interest rates and low inflation: A review of literature and methods

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  • Mariarosaria Comunale
  • Jonas Striaukas

Abstract

In this paper, we review a range of approaches used to capture monetary policy in a period of Zero Lower Bound (ZLB). We concentrate here on methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis, and different shadow rates. Next, we calculate these measures for the euro area, draw comparisons among different approaches, and look at the effects on main macroeconomic variables, with a special focus on inflation. By and large, the impact of unconventional monetary policy shocks on inflation is found to be significantly positive across studies and methods. Finally, we summarize the literature on the Natural Real Rate of Interest. This overview may help to assess how long low (real) interest rates in a ZLB stay in place, potentially leading to more accurate policy recommendations.

Suggested Citation

  • Mariarosaria Comunale & Jonas Striaukas, 2017. "Unconventional monetary policy: interest rates and low inflation: A review of literature and methods," CAMA Working Papers 2017-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2017-29
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    References listed on IDEAS

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    Cited by:

    1. Rasa Stasiukynaite, 2017. "Understanding Monetary Policy Stance," Bank of Lithuania Occasional Paper Series 14, Bank of Lithuania.

    More about this item

    Keywords

    Unconventional monetary policy; zero lower bound; shadow rates; natural interest rate; inflation.;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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