Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero PDF Download
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Author: Athanasios Orphanides
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 70
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Book Description
Author: Athanasios Orphanides
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 70
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Book Description
Author: Günter Coenen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Ben S. Bernanke
Publisher: www.bnpublishing.com
ISBN: 9781607961055
Category :
Languages : en
Pages : 0
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Book Description
The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate "noarbitrage" models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.
Author: Karen Johnson
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 50
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Book Description
This paper explores issues that arise in implementing monetary policy under conditions of sustained price stability. We discuss several issues that concern the selection of a central bank's inflation objective under such conditions: price measurement; the behavior of other key variables, particularly wages; and the possible existence of other channels through which low inflation could change relationships within the real economy. We present a framework for analyzing monetary policy reaction functions that can illuminate the choices facing policy makers in a regime of price stability. The zero lower bound on nominal interest rates is a potential constraint on monetary policy when nominal interest rates are low on average, which will tend to be the case when long-term inflation is low. We summarize the results of research done at the Federal Reserve to clarify these issues for the United States and consider the availability and effectiveness of alternative policy tools when the nominal interest rate is at the zero bound.
Author: Athanasios Orphanides
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Author: Günter Coenen
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
Author: Jeffrey C. Fuhrer
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 60
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Author: Athanasios Orphanides
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 64
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Author: John C. Williams
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
In theory, monetary policies that target the price level, as opposed to the inflation rate, should be highly effective at stabilizing the economy and avoiding deflation in the presence of the zero lower bound on nominal interest rates. With such a policy, if the short-term interest rate is constrained at zero and the inflation rate declines below its trend, the public expects that policy will eventually engineer a period of above-trend inflation that restores the price level to its target level. Expectations of future monetary accommodation stimulate output and inflation today, mitigating the effects of the zero bound. The effectiveness of such a policy strategy depends crucially on the alignment of the public's and the central bank's expectations of future policy actions. In this paper, we consider an environment where private agents have imperfect knowledge of the economy and therefore continuously reestimate the forecasting model that they use to form expectations. We find that imperfect knowledge on the part of the public, especially regarding monetary policy, can undermine the effectiveness of price-level-targeting strategies that would work well if the public had complete knowledge. For low inflation targets, the zero lower bound can cause a dramatic deterioration in macroeconomic performance with severe recessions occurring with alarming frequency. However, effective communication of the policy strategy that reduces the public's confusion about the future course of monetary policy significantly reduces the stabilization costs associated with the zero bound. Finally, the combination of learning and the zero bound implies the need for a stronger policy response to movements in the price level than would otherwise be optimal and such a rule is effective at stabilizing both inflation and output in the presence of learning and the zero bound even with a low inflation target.
Author: Shigeru Iwata
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Using a nonlinear structural VAR approach, we estimate the effects of exogenous monetary impulses in the presence of a zero lower bound constraint on nominal interest rates and examine the impact of such a constraint on the effectiveness of counter-cyclical monetary policies. We find that a binding zero bound on nominal interest rates can eliminate more than 50% of the effect of an exogenous monetary impulse on output based on the data from Japan. The conditional impulse response functions allow us to isolate the effect of monetary shocks operating through the interest rate channel when other possible channels of monetary transmission are present. Moreover, we also find that the zero bound on nominal interest rates could severely limit the ability of central banks to pursue a counter-cyclical monetary policy when facing adverse macroeconomic shocks.
