Exchange-Rate Policy and the Zero Bound on Nominal Interest Rates

Oil Shocks and the Zero Bound on Nominal Interest Rates

Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from...

The Zero Bound on Interest Rates and Optimal Monetary Policy

We consider the consequences for monetary policy of the zero floor for nominal interest rates. The zero bound can be a significant constraint on the ability of a central bank to combat deflation. We show, in the context of an intertemporal equilibrium model, that open-market operations, even of “unconventional” types, are ineffective if future policy is expected to be purely forward-looking. No...

Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates

4 1 Non-technical summary 5 2 Introduction 7 3 Related literature 11 4 The monetary policy problem 12 4.1 Discussion 14 4.1.1 Relation to earlier work 14 4.1.2 Policy instruments 14 4.1.3 How much non-linearity? 15 5 Model calibration 17 7 Optimal policy with lower bound 20 7.1 Optimal policy functions 20 7.2 Dynamic response to real rate shocks 23 7.3 Frequency of binding rates and welfare imp...

Optimal Monetary Policy under Discretion with a Zero Bound on Nominal Interest Rates

We determine optimal discretionary monetary policy in a New-Keynesian model when nominal interest rates are bounded below by zero. Nominal interest rates should be lowered faster in response to adverse shocks than in the case without bound. Such ‘preemptive easing’ is optimal because expectations of a possibly binding bound in the future amplify the e ects of adverse shocks. Calibrating the mod...

Comment on : The zero - interest - rate bound and the role of the exchange rate for monetary policy in Japan