Monetary Policy When the Nominal Short-Term Interest Rate is Zero

Measuring Monetary Policy when the Nominal Short-Term Interest Rate is Zero: A Dynamic Stochastic Genearl Equilibrium Approach

This paper proposes an empirical dynamic stochastic general equilibrium (DSGE) framework to measure monetary policy when the nominal short-term interest rate is zero. The framework assumes that there exists a shadow rate which represents the monetary policy stance of a central bank. When the shadow rate is positive, it is observed as the policy rate of the central bank. However, when it is nega...

Real Balance Effects When the Nominal Interest Rate is Zero

What are the economic effects of a large increase in real balances of money on the economy when the nominal interest is zero? This paper considers this question using a computable overlapping generations model. In this model increases in money supply that increase the overall stock of government debt have real effects. Results from a dynamic simulation analysis indicate that monetary policies s...

Working Paper No. 231 Price Stability and Monetary Policy Effectiveness When Nominal Interest Rates Are Bounded at Zero Price Stability and Monetary Policy Effectiveness When Nominal Interest Rates Are Bounded at Zero

The Effect of Monetary Policy on Short-Term Interest Rates

Even though theorists acquiesce to the liquidity effect as a theoietical proposition, it is often challenged on efficacy grounds. It is argued that changes in the money stock do not leave all other things unchanged. Monetarists, such as Friedman (1968) assert that the liquidity effect is, at best, only temporary; the ultimate effect of more rapid money growth is higher inflation (or, mom-c impo...

The Effect of " Quantitative Monetary Easing " When the Nominal Short-term Interest Rate Is Zero A. Decline in Long-term Interest Rates B. Relief from Concern over the Liquidity of Financial Institutions

Any textbook of macroeconomics will tell you that the starting point of the transmission mechanism of monetary policy is a change in reserves and an associated change in short-term interest rates. Reserves can only be provided by a central bank. Therefore, when a central bank increases its provision of reserves, it is certain that short-term interest rates will decline. Changes in short-term in...