Academic literature on the topic 'Zero interest rate lower bound'
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Journal articles on the topic "Zero interest rate lower bound"
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Klose, Jens. "Exchange rate movements in the presence of the zero lower bound." Banks and Bank Systems 12, no. 1 (2017): 82–87. http://dx.doi.org/10.21511/bbs.12(1).2017.10.
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Exchange rates are expected to adjust according to the stance of monetary policies, which are in normal times differences in interest rates set by the central banks. This interest rate parity does, however, no longer hold if central banks approach the zero lower bound on interest rates and switch to measures of quantitative easing. Therefore, the author estimates exchange rate changes based on the different stance of the monetary base, which is an indicator of differing monetary policies in the countries. The results reveal that indeed exchange rates movements in the Dollar-Euro-Rate can be explained by differences in the monetary base, since the zero lower bound has become binding. However, the influence depends crucially on whether the monetary base is increased or decreased and whether the other central bank is also expanding or reducing its balance sheet at the same time. Keywords: monetary base, exchange rate, Fed, ECB. JEL Classification: E52, E58, F42
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Lee, Sang Seok. "INFORMATION VALUE OF THE INTEREST RATE AND THE ZERO LOWER BOUND." Macroeconomic Dynamics 24, no. 7 (2019): 1758–84. http://dx.doi.org/10.1017/s1365100518001037.
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Why is a zero lower bound episode long-lasting and disruptive? This paper proposes the interruption of information flow from the central bank’s interest rate decision to the private sector as a channel by which the destabilizing effect of the zero lower bound constraint on the nominal interest rate is amplified. This mechanism is incorporated into the new Keynesian model by modifying its information structure. This paper shows that the information loss at the zero lower bound can increase (a) the duration of the zero lower bound episodes and (b) the size of deflation and output gap loss. The result in this paper demonstrates that enhanced information sharing by the central bank about the state of the economy can be effective at alleviating the cost of the zero lower bound.
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Amador, Manuel, Javier Bianchi, Luigi Bocola, and Fabrizio Perri. "Exchange Rate Policies at the Zero Lower Bound." Review of Economic Studies 87, no. 4 (2019): 1605–45. http://dx.doi.org/10.1093/restud/rdz059.
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Abstract We study the problem of a monetary authority pursuing an exchange rate policy that is inconsistent with interest rate parity because of a binding zero lower bound constraint. The resulting violation in interest rate parity generates an inflow of capital that the monetary authority needs to absorb by accumulating foreign reserves. We show that these interventions by the monetary authority are costly, and we derive a simple measure of these costs: they are proportional to deviations from the covered interest parity (CIP) condition and the amount of accumulated foreign reserves. Our framework can account for the recent experiences of “safe-haven” currencies and the sign of their observed deviations from CIP.
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Tarelli, Andrea. "No-arbitrage one-factor term structure models in zero- or negative-lower-bound environments." Investment Management and Financial Innovations 17, no. 1 (2020): 197–212. http://dx.doi.org/10.21511/imfi.17(1).2020.18.
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One-factor no-arbitrage term structure models where the instantaneous interest rate follows either the process proposed by Vasicek (1977) or by Cox, Ingersoll, and Ross (1985), commonly known as CIR, are parsimonious and analytically tractable. Models based on the original CIR process have the important characteristic of allowing for a time-varying conditional interest rate volatility but are undefined in negative interest rate environments. A Shifted-CIR no-arbitrage term structure model, where the instantaneous interest rate is given by the sum of a constant lower bound and a non-negative CIR-like process, allows for negative yields and benefits from similar tractability of the original CIR model. Based on the U.S. and German yield curve data, the Vasicek and Shifted-CIR specifications, both considering constant and time-varying risk premia, are compared in terms of information criteria and forecasting ability. Information criteria prefer the Shifted-CIR specification to models based on the Vasicek process. It also provides similar or better in-sample and out-of-sample forecasting ability of future yield curve movements. Introducing a time variation of the interest rate risk premium in no-arbitrage one-factor term structure models is instead not recommended, as it provides worse information criteria and forecasting performance.
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Gust, Christopher, Edward Herbst, David López-Salido, and Matthew E. Smith. "The Empirical Implications of the Interest-Rate Lower Bound." American Economic Review 107, no. 7 (2017): 1971–2006. http://dx.doi.org/10.1257/aer.20121437.
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Using Bayesian methods, we estimate a nonlinear DSGE model in which the interest-rate lower bound is occasionally binding. We quantify the size and nature of disturbances that pushed the US economy to the lower bound in late 2008 as well as the contribution of the lower bound constraint to the resulting economic slump. We find that the interest-rate lower bound was a significant constraint on monetary policy that exacerbated the recession and inhibited the recovery, as our mean estimates imply that the zero lower bound (ZLB) accounted for about 30 percent of the sharp contraction in US GDP that occurred in 2009 and an even larger fraction of the slow recovery that followed. (JEL C11, C32, E12, E23, E32, E43, E52, G01)
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Mavroeidis, Sophocles. "Identification at the Zero Lower Bound." Econometrica 89, no. 6 (2021): 2855–85. http://dx.doi.org/10.3982/ecta17388.
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I show that the zero lower bound (ZLB) on interest rates can be used to identify the causal effects of monetary policy. Identification depends on the extent to which the ZLB limits the efficacy of monetary policy. I propose a simple way to test the efficacy of unconventional policies, modeled via a “shadow rate.” I apply this method to U.S. monetary policy using a three‐equation structural vector autoregressive model of inflation, unemployment, and the Federal Funds rate. I reject the null hypothesis that unconventional monetary policy has no effect at the ZLB, but find some evidence that it is not as effective as conventional monetary policy.
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Gerlach, Stefan, and John Lewis. "Zero lower bound, ECB interest rate policy and the financial crisis." Empirical Economics 46, no. 3 (2013): 865–86. http://dx.doi.org/10.1007/s00181-013-0713-6.
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Bodenstein, Martin, James Hebden, and Ricardo Nunes. "Imperfect Credibility and the Zero Lower Bound on the Nominal Interest Rate." International Finance Discussion Paper 2010, no. 1001 (2010): 1–38. http://dx.doi.org/10.17016/ifdp.2010.1001.
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Jones, Callum, Mariano Kulish, and James Morley. "A Structural Measure of the Shadow Federal Funds Rate." Finance and Economics Discussion Series 2021, no. 064 (2021): 1–40. http://dx.doi.org/10.17016/feds.2021.064.
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We propose a shadow policy interest rate based on an estimated structural model that accounts for the zero lower bound. The lower bound constraint, if expected to bind, is contractionary and increases the shadow rate compared to an unconstrained systematic policy response. By contrast, forward guidance and other unconventional policies that extend the expected duration of zero-interest-rate policy are expansionary and decrease the shadow rate. By quantifying these distinct effects, our structural shadow federal funds rate better captures the stance of monetary policy given economic conditions than a shadow rate based only on the term structure of interest rates.
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Fischer, Stanley. "Monetary Policy, Financial Stability, and the Zero Lower Bound." American Economic Review 106, no. 5 (2016): 39–42. http://dx.doi.org/10.1257/aer.p20161005.
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Much has happened in the world of central banking in the past decade. In this paper, I focus on three issues associated with the zero lower bound (ZLB) on short-term nominal interest rates and the nexus between monetary policy and financial stability: 1) whether we are moving toward a permanently lower long-run equilibrium real interest rate; 2) what steps can be taken to mitigate the constraints imposed by the ZLB; and 3) whether and how financial stability considerations should be incorporated in the conduct of monetary policy. These important topics deserve the attention of both academic and government professionals.
Dissertations / Theses on the topic "Zero interest rate lower bound"
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Roussellet, Guillaume. "Non-Negativity, Zero Lower Bound and Affine Interest Rate Models." Thesis, Paris 9, 2015. http://www.theses.fr/2015PA090012/document.
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Cette thèse présente plusieurs extensions relatives aux modèles affines positifs de taux d'intérêt. Un premier chapitre introduit les concepts reliés aux modélisations employées dans les chapitres suivants. Il détaille la définition de processus dits affines, et la construction de modèles de prix d'actifs obtenus par non-arbitrage. Le chapitre 2 propose une nouvelle méthode d’estimation et de filtrage pour les modèles espace-état linéaire-quadratiques. Le chapitre suivant applique cette méthode d’estimation à la modélisation d’écarts de taux interbancaires de la zone Euro, afin d’en décomposer les fluctuations liées au risque de défaut et de liquidité. Le chapitre 4 développe une nouvelle technique de création de processus affines multivariés à partir leurs contreparties univariées, sans imposer l’indépendance conditionnelle entre leurs composantes. Le dernier chapitre applique cette méthode et dérive un processus affine multivarié dont certaines composantes peuvent rester à zéro pendant des périodes prolongées. Incorporé dans un modèle de taux d’intérêt, ce processus permet de rendre compte efficacement des taux plancher à zéro<br>This thesis presents new developments in the literature of non-negative affine interest rate models. The first chapter is devoted to the introduction of the main mathematical tools used in the following chapters. In particular, it presents the so-called affine processes which are extensively employed in no-arbitrage interest rate models. Chapter 2 provides a new filtering and estimation method for linear-quadratic state-space models. This technique is exploited in the 3rd chapter to estimate a positive asset pricing model on the term structure of Euro area interbank spreads. This allows us to decompose the interbank risk into a default risk and a liquidity risk components. Chapter 4 proposes a new recursive method for building general multivariate affine processes from their univariate counterparts. In particular, our method does not impose the conditional independence between the different vector elements. We apply this technique in Chapter 5 to produce multivariate non-negative affine processes where some components can stay at zero for several periods. This process is exploited to build a term structure model consistent with the zero lower bound features
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Zhang, Yifei. "Zero Lower Bound and Uncovered Interest Parity – A Forecasting Perspective." Miami University / OhioLINK, 2018. http://rave.ohiolink.edu/etdc/view?acc_num=miami1532698263083492.
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Huber, Florian, and Maria Teresa Punzi. "International Housing Markets, Unconventional Monetary Policy and the Zero Lower Bound." WU Vienna University of Economics and Business, 2016. http://epub.wu.ac.at/4824/1/wp216.pdf.
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In this paper we propose a time-varying parameter VAR model for the housing market in the United States, the United Kingdom, Japan and the Euro Area. For these four economies, we answer the following research questions: (i) How can we evaluate the stance of monetary policy when the policy rate hits the zero lower bound? (ii) Can developments in the housing market still be explained by policy measures adopted by central banks? (iii) Did central banks succeed in mitigating the detrimental impact of the financial crisis on selected housing variables? We analyze the relationship between unconventional monetary policy and the housing markets by using the shadow interest rate estimated by Krippner (2013b). Our findings suggest that the monetary policy transmission mechanism to the housing market has not changed with the implementation of quantitative easing or forward guidance, and central banks can affect the composition of an investors portfolio through investment in housing. A counterfactual exercise provides some evidence that unconventional monetary policy has been particularly successful in dampening the consequences of the financial crisis on housing markets in the United States, while the effects are more muted in the other countries considered in this study. (authors' abstract)<br>Series: Department of Economics Working Paper Series
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Di, Serio Mario. "Empirical applications of the interacted panel VAR model." Doctoral thesis, Universita degli studi di Salerno, 2018. http://hdl.handle.net/10556/3090.
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2016 - 2017<br>The Vector Autoregressive (VAR) Models can be considered as a dynamic
multivariate extension of the univariate autoregressive models. This family of
models has become very popular in macroeconomics analysis after the work of
Sims(1980) and they are widely used in time series literature thanks to their
flexibility. As a matter of fact, by setting appropriately a VAR model, we can
describe efficiently the dynamics of the economy and provide quite accurate
forecasts.
During recent years, researchers developed different VAR models with the
purpose to represent better the data generating process. Among these, the
nonlinear VAR models have gained a central role in macroeconometric analysis
in testing the theory, due to their capacity to capture a richer set of dynamics
regarding current macroeconomic phenomenons. Depending on the specific
model, they can allow, for example, different states (regimes) of the world, to
allow the coefficients of the model to vary over time in each time unit, allowing
for interactions between variables potentially revealing important information.
The first paper included in this thesis is a survey which have the purpose to
examine linear and nonlinear VAR models.
The second and third papers present two empirical applications of the
Interacted Panel VAR Model, which is a new nonlinear methodology we illustrated
over the first paper. Specifically, we analyze in both papers the
behavior of government spending multiplier when the interest rate is at the
Zero Lower Bound (ZLB). This is a highly topical question since the outbreak
of Great Recession, given that many policy makers have wondered whether
fiscal stimulus would be able to help the economy to recover from recession. In
particular, there exist two different and opposite theoretical predictions. New
Keynesian DSGE models show that, when the interest rate is at the ZLB, a
raise in government spending has a strong and positive impact on the economy.
On the other side, theoretical prediction indicate very low multipliers, showing
that an increase in government spending does not stimulate private activity.
Although there exist many theoretical predictions about the size of government
spending multiplier at the ZLB, very few empirical evidences are
provided. These two paper aim to shed light on the size of the government
spending multiplier at the ZLB. Among the nonlinear VAR models, we choose
the Interacted (Panel) VAR Model because it offers an important advantage
compared to others nonlinear approaches. Thanks to the interaction term, we
are able to investigate among the entire sample. This can be done also within
a time varying framework, but it implies a larger number of estimates which
requires informative priors. In order to be as more agnostic as possible, we
also use a Bayesian approach for inference but with uninformative priors.
In the first paper we develop an Interacted VAR Model and conduct our
analysis on the United States sample. In order to identify government spending
shocks we use the sign restrictions approach, furthermore we use the forecast
series of government spending to account for the potential effects of anticipation
that can pose serious problems for the identification of government
spending shocks. We find that the government spending multiplier ranges
between 3.4 and 3.7 at the ZLB, while it ranges from 1.5 to 2.7 away from
the ZLB. Then, we develop a Factor-Augmented IVAR (FAIVAR) model with
the purpose to address another limited information problem. It confirms our
results from a qualitatively point of view. As a matter of fact, the government
spending multiplier ranges between 2.0 and 2.1 at the ZLB and between 1.5
and 1.8 away from the ZLB. These results are also in line with some recent
studies which predict higher multipliers at the ZLB than in normal times... [edited by author]<br>XVI n.s.
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Cavaco, Francisco Ferreira. "Are negative interest rates on bank credit possible?" Master's thesis, Instituto Superior de Economia e Gestão, 2020. http://hdl.handle.net/10400.5/20570.
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Mestrado em Economia Monetária e Financeira<br>Na atual estrutura monetária, os bancos centrais estão limitados no seu objetivo de assegurar estabilidade de preços e pleno emprego devido ao limite inferior zero nas taxas de juro nominais. Isto acontece porque taxas de juro nominais negativas nos depósitos bancários - condição necessária para alcançar taxas de juro nominais negativas no crédito bancário - causariam uma fuga de depósitos para dinheiro físico, pois o dinheiro físico paga uma taxa de juro nominal igual a zero. Para contrariar esta restrição, propomos uma nova arquitetura monetária que, ao tornar o banco central como a única fonte de financiamento para empréstimos bancários a taxa de juro negativa, irá permitir aos bancos conceder crédito a juros negativos de forma lucrativa - podendo estes manter as taxas de juros dos depósitos dos seus clientes a valores não negativos.<br>Under the current monetary framework, central banks are limited in their pursue of price stability and full employment due to the zero lower bound on nominal interest rates. This happens because negative nominal rates on bank deposits - deemed a necessary condition for negative nominal rates on bank credit - will cause a massive flight from deposits to cash, as cash pays zero nominal interest rates. To counter this constraint, we propose a new monetary architecture that by making the central bank the single source of funding for bank loans at negative nominal interest rates, enables banks to profitably extend credit at negative nominal rates - while still paying zero interest rates on their clients' deposits.<br>info:eu-repo/semantics/publishedVersion
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Oliveira, Mário André Santos de. "Should central banks increase the inflation target?" Master's thesis, Instituto Superior de Economia e Gestão, 2016. http://hdl.handle.net/10400.5/13101.
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Mestrado em Economia Monetária e Financeira<br>Tipicamente os Bancos Centrais usam as taxas de juro para inverter os efeitos das crises económicas. No entanto, temos observado que se as taxas de juro nominais já estiverem muito próximo de zero, então a capacidade que estes têm de usar este mecanismo para estimular a actividade económica é reduzida. O principal objectivo desta dissertação é estudar se aumentando o nível médio de inflação, aumenta a capacidade do bancos centrais em inverter crises económicas. Especificamente, iremos estudar se a taxa de juro real diminui mais para valores médios mais elevados da taxa de inflação, quando um choque exógeno na taxa de juro nominal ocorre. Para tal, iremos utilizar um modelo de equilíbrio geral, onde os agentes são heterogéneos na quantidade de moeda que detêm. O nosso modelo sugere que aumentar o target da inflação não aumenta o estímulo provocado pela taxa de juro real, quando um choque de 1 ponto-percentual ocorre sobre a taxa de juro nominal. De facto, o que se verifica é que a taxa de juro real diminui mais quanto menor for o nível médio de inflação. Isto ocorre porque o grau de price stickiness é menor para níveis mais elevados do target da inflação.<br>Typically when central banks face economic slowdowns they use the interest rate channel to boost economies. However, we have seen that if the nominal interest rate is already at low levels, then their capacity to invert such economic slowdowns is little. The main objective of this dissertation is to study whether increasing the inflation target can increase the capacity of central banks to invert economic downturns. Specifically, we will study whether the real interest rate decreases more when the inflation target is higher, as a response to a negative shock in the nominal interest rate. To study this we use a general equilibrium model, where agents are heterogeneous in their amount of money holdings. Our model suggests that increasing the inflation target does not increase the real stimulus of central banks when they decrease the nominal interest rate by one percentage-point. In fact, the real interest rate declines more, the lower the target. This occurs because the degree of price stickiness is lower for higher levels of inflation.<br>info:eu-repo/semantics/publishedVersion
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Celer, Martin. "Kvantitativní uvolňování – měnová politika při nulové nominální úrokové míře." Master's thesis, Vysoká škola ekonomická v Praze, 2015. http://www.nusl.cz/ntk/nusl-201844.
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This diploma thesis describes the Quantitative easing as an unconvetional tool of the monetary policy. In the first chapter of this thesis there is theoretical analysis of the zero lower bound and also of specific phenomenon that might occur in this situation (the liquidity trap). The second chapter deals with the quantitative easing as a monetary policy with focus on the United States. It summarizes its development during three so called rounds, during which the quantitative easing has been used. This chapter also contains analysis of the entrance and exit strategy of the quantitative easing. In the third chapter, there is an econometric model estimated by ordinary least squares method with robust errors. This model is being used to verify the hypothesis whether the quantitative easing lowered long-term interest rates. The hypothesis has been rejected as the quantitative easing does not have statistically significant effect on any selected long-term bonds.
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Esmail, Shabbirhussein. "Estimation of Shadow-Rate Term Structure Models Near the Zero-Lower Bound." Master's thesis, Faculty of Commerce, 2019. http://hdl.handle.net/11427/31152.
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Though it is customary to use standard Gaussian term structure models for term structure modelling, this becomes theoretically implausible in cases when nominal interest rates are near zero: Gaussian models can have arbitrarily large negative rates, whereas arbitrage considerations dictate that rates should remain positive (or very slightly negative at most). Black (1995) suggests that interest rates include an optionality which restricts them to non-negative values. This introduces a non-linearity at the zero-lower bound that makes these so-called shadow-rate models a computational challenge. This dissertation analyses the shadow-rate approximations suggested by Krippner (2013) and Priebsch (2013) for the Vasicek and ˇ arbitrage-free Nelson-Siegel (AFNS) models. We also investigate and compare the accuracy of the iterated extended Kalman filter (IEKF) with that of the unscented Kalman filter (UKF). We find that Krippner’s approach approximates interest rates within reasonable bounds for both the 1-factor Vasicek and AFNS models. Prieb- ˇ sch’s first-cumulant method is more accurate than Krippner’s method for a 1-factor Vasicek model, while Priebsch’s second-cumulant method is deemed impractical ˇ because of the computational time it takes. In a multi-factor AFNS model, only Krippner’s framework is feasible. Moreover, the IEKF outperforms the UKF in terms of filtering with no significant difference in run-time.
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Dragoun, Josef. "Nekonvenční monetární politika po krachu Lehman Brothers." Master's thesis, Vysoká škola ekonomická v Praze, 2013. http://www.nusl.cz/ntk/nusl-202129.
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This diploma thesis is focused on unconventional monetary policy tools that individual central banks introduced into practise as a response to the global financial crisis. It is about quantitative easing policy, foreign exchange interventions with exchange rate commitment and negative interest rates. This thesis also deals with classical tools of monetary policy such as open market operations, discount tools, minimum requirement reserve or foreign exchange interventions. The aim of the thesis is to document the development of central banks policy and then to examine relationship of selected assets in comparison with balance sheet of Federal reserve systems with help of correlation coefficient. The thesis also deals with the thought how should behave in the zero lower bound environment and what are the pitfalls of unconventional monetary policy.
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Berglund, Pontus, and Daniel Kamangar. "An Empirical Study on the Reversal Interest Rate." Thesis, KTH, Matematisk statistik, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-273549.
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Previous research suggests that a policy interest rate cut below the reversal interest rate reverses the intended effect of monetary policy and becomes contractionary for lending. This paper is an empirical investigation into whether the reversal interest rate was breached in the Swedish negative interest rate environment between February 2015 and July 2016. We find that banks with a greater reliance on deposit funding were adversely affected by the negative interest rate environment, relative to other banks. This is because deposit rates are constrained by a zero lower bound, since banks are reluctant to introduce negative deposit rates for fear of deposit withdrawals. We show with a difference-in-differences approach that the most affected banks reduced loans to households and raised 5 year mortgage lending rates, as compared to the less affected banks, in the negative interest rate environment. These banks also experienced a drop in profitability, suggesting that the zero lower bound on deposits caused the lending spread of banks to be squeezed. However, we do not find evidence that the reversal rate has been breached.<br>Tidigare forskning menar att en sänkning av styrräntan under brytpunktsräntan gör att penningpolitiken får motsatt effekt och blir åtstramande för utlåning. Denna rapport är en empirisk studie av huruvida brytpunktsräntan passerades i det negativa ränteläget mellan februari 2015 och juli 2016 i Sverige. Våra resultat pekar på att banker vars finansiering till större del bestod av inlåning påverkades negativt av den negativa styrräntan, relativt till andra banker. Detta beror på att inlåningsräntor är begränsade av en lägre nedre gräns på noll procent. Banker är ovilliga att introducera negativa inlåningsräntor för att undvika att kunder tar ut sina insättningar och håller kontanter istället. Vi visar med en "difference-in-differences"-analys att de mest påverkade bankerna minskade lån till hushåll och höjde bolåneräntor med 5-åriga löptider, relativt till mindre påverkade banker, som konsekvens av den negativa styrräntan. Dessa banker upplevde även en minskning av lönsamhet, vilket indikerar att noll som en nedre gräns på inlåningsräntor bidrog till att bankernas räntemarginaler minskade. Vi hittar dock inga bevis på att brytpunktsräntan har passerats.
Books on the topic "Zero interest rate lower bound"
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McCallum, Bennett T. Theoretical analysis regarding a zero lower bound on nominal interest rates. National Bureau of Economic Research, 2000.
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Adam, Klaus. Discretionary monetary policy and the zero lower bound on nominal interest rates. Research Division, Federal Reserve Bank of Kansas City, 2005.
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Carrillo, Julio A., and Céline Poilly. Investigating the Zero Lower Bound on the Nominal Interest Rate Under Financial Instability. Banco de México, 2014. http://dx.doi.org/10.36095/banxico/di.2014.01.
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Homburg, Stefan. Constrained Credit. Oxford University Press, 2017. http://dx.doi.org/10.1093/oso/9780198807537.003.0004.
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Chapter 4 considers economies with borrowing constraints. This assumption is motivated by the observation that monetary expansions after the Great Recession did not entail inflation in the expected manner. At the same time, nominal and real interest rates tended to decline in many advanced economies. The text offers an in-depth analysis of credit crunches, liquidity traps, and interest rates at the zero lower bound and demonstrates that borrowing constraints help reconcile theory and evidence. According to the key insight, a binding borrowing constraint detaches money creation from credit creation. In this case, inflation ceases to be a monetary phenomenon, as in standard models, but becomes a credit phenomenon. This finding explains why expansionary monetary policies failed to produce inflation since the Great Recession.
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Barthélemy, Jean, and Magali Marx. Solving Rational Expectations Models. Edited by Shu-Heng Chen, Mak Kaboudan, and Ye-Rong Du. Oxford University Press, 2018. http://dx.doi.org/10.1093/oxfordhb/9780199844371.013.6.
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This chapter presents theoretical foundations of main methods of solving rational expectations models with a special focus on perturbation approaches. First, it gives some insights into the solution methods for linear models. Second, it shows how to use the perturbation approach for solving nonlinear models. It then documents the limits of this approach. The perturbation approach, though the most common solution method in the macroeconomic literature, is inappropriate in contexts of large fluctuations (large shocks or regime switching) and of strong nonlinearities (e.g., occasionally binding constraints). The former case is illustrated by regime switching models. The latter case is illustrated by a study of existing methods for solving rational expectations models under the zero lower bound constraint, that is, the condition of non-negativity of the nominal interest rate. The chapter concludes with a presentation of global methods available when the perturbation approach fails in solving models.
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Homburg, Stefan. A Study in Monetary Macroeconomics. Oxford University Press, 2017. http://dx.doi.org/10.1093/oso/9780198807537.001.0001.
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The Great Recession of 2008/09 and its aftermath present a major challenge to macroeconomics. Many researchers think that prevailing models fail to grasp essential aspects of recent developments, including unprecedented monetary policies and interest rates at the zero lower bound. Approaches that focus on steady states, rational expectations, and individuals planning over infinite horizons are not suitable for analyzing such abnormal situations. This text does not criticize the traditional approach but aims at improvement. The study’s distinctive feature is a rich institutional structure that includes elements such as credit money, external finance, borrowing constraints, net worth, real estate, and commercial banks. To cope with such a complex setting, the text reduces rationality requirements but adheres to the method of dynamic general equilibrium (DGE) with optimizing agents and fully specified models. Results are derived from mathematical reasoning and simulations. Starting with a simple baseline model, the argument is developed step by step in a unified framework that covers almost everything of interest for monetary macroeconomists. The topics discussed include the superneutrality of money, the Tobin effect, monetary policy under sticky prices and wages, but also liquidity traps with borrowing constraints, Fisherian debt-deflations, housing cycles, and environments with excess bank reserves. The text addresses researchers worldwide and may prove useful for teaching postgraduate and advanced graduate courses. The principle objective is to demonstrate that a “not-too-rational” DGE approach makes it possible to develop clean models that work outside steady states and are appropriate for answering macroeconomic questions of actual interest.
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Lim, G. C., and Paul D. McNelis. Tax-Rate Rules for Reducing Government Debt. Edited by Shu-Heng Chen, Mak Kaboudan, and Ye-Rong Du. Oxford University Press, 2018. http://dx.doi.org/10.1093/oxfordhb/9780199844371.013.5.
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This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and simulating a macroeconomic model in order to evaluate alternative policies for reducing domestic public debt. It extends the simple closed-economy New Keynesian model by incorporating the zero lower bound and asymmetric wage adjustment (in which wages are much more rigid in the downward direction). We examine the dynamics of adjustment, given a sharp increase in government debt due to a once-only big increase in spending. We find that selective tax-rate rules, incorporating a degree of tax relief in a period of fiscal consolidation, are effective instruments for rapidly reducing the overhang of a large stock of public debt.
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Horneff, Vanya, Raimond Maurer, and Olivia S. Mitchell. How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior. Oxford University Press, 2018. http://dx.doi.org/10.1093/oso/9780198827443.003.0008.
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This chapter explores how an environment of persistent low returns influences saving, investing, and retirement behaviors, compared to what in the past had been conceived of as ‘normal’ financial conditions. Using a calibrated life cycle dynamic model with realistic tax, minimum distribution, and social security benefit rules, we can mimic the large peak at the earliest claiming age at 62 that is seen in the data. Also in line with the evidence, our baseline results show a smaller second peak at the (system-defined) Full Retirement Age of 66. In the context of a zero-return environment, we show that workers will optimally devote more of their savings to non-retirement accounts and less to 401(k) accounts, since the relative appeal of investing in taxable versus tax-qualified retirement accounts is lower in a low return setting. Finally, we show that people claim social security benefits later in a low interest rate environment.
Book chapters on the topic "Zero interest rate lower bound"
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Bindseil, Ulrich, and Alessio Fotia. "Unconventional Monetary Policy." In Introduction to Central Banking. Springer International Publishing, 2021. http://dx.doi.org/10.1007/978-3-030-70884-9_4.
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AbstractThis chapter introduces the reader to unconventional monetary policy, i.e. monetary policy using instruments going beyond the steering of short-term interest rates as described in the previous chapter. We start by providing the rationale of unconventional monetary policy, i.e. essentially pursuing an effective monetary policy when conventional policies are not able to provide the necessary monetary accommodation because of the zero lower bound. We then discuss negative interest rate policies, and explain why rates slightly below zero have proven to be feasible despite the existence of banknotes. We also discuss possible unintended side-effects of negative interest rates. We continue with a discussion of non-conventional credit operations: lengthening of their duration, the use of fixed-rate full allotment, the widening of the access of counterparties to the central bank’s credit operation, targeted operations, credit in foreign currency, and widening the collateral set. Finally, we turn to the purposes and effects of securities purchase programmes. We end the chapter by revisiting the classification of central bank instruments in three categories: conventional, unconventional, and lender of last resort.
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von Weizsäcker, Carl Christian, and Hagen M. Krämer. "A New Era of International Economic Policy." In Saving and Investment in the Twenty-First Century. Springer International Publishing, 2021. http://dx.doi.org/10.1007/978-3-030-75031-2_10.
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AbstractWe distinguish between a “Friedman world” and a “Keynes world,” the latter being characterized by the zero lower bound problem. With the natural rate of interest tending to fall over time, the Keynes world is becoming the norm. In the Keynes world, voters defend their interests as producers more than their interests as consumers. This strengthens protectionism at the ballot box. We are less and less able to rely on the USA to serve as the engine of the global economy via its high current account deficits. In addition to the WTO rules, an international fiscal order is needed to rescuefree trade: 1. At low real interest rates, countries with current account surpluses undertake to eliminate them by increasing government net borrowing. 2. At high real interest rates, countries with current account deficits undertake to eliminate them by cutting fiscal expenditure or raising taxes.
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Bindseil, Ulrich, and Alessio Fotia. "Conventional Monetary Policy." In Introduction to Central Banking. Springer International Publishing, 2021. http://dx.doi.org/10.1007/978-3-030-70884-9_3.
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AbstractThis chapter introduces conventional monetary policy, i.e. monetary policy during periods of economic and financial stability and when short-term interest rates are not constrained by the zero lower bound. We introduce the concept of an operational target of monetary policy and explain why central banks normally give this role to the short-term interbank rate. We briefly touch macroeconomics by outlining how central banks should set interest rates across time to achieve their ultimate target, e.g. price stability, and we acknowledge the complications in doing so. We then zoom further into monetary policy operations and central bank balance sheets by developing the concepts of autonomous factor, monetary policy instruments, and liquidity-absorbing and liquidity providing balance sheet items. Subsequently we explain how these quantities relate to short-term interest rates, and how the central bank can rely on this relation to steer its operational target, and thereby the starting point of monetary policy transmission. Finally, we explain the importance of the collateral framework and related risk control measures (e.g. haircuts) for the liquidity of banks and for the conduct of central bank credit operations.
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von Weizsäcker, Carl Christian, and Hagen M. Krämer. "The Natural Rate of Interest and the Optimal Rate of Interest in the Steady State." In Saving and Investment in the Twenty-First Century. Springer International Publishing, 2021. http://dx.doi.org/10.1007/978-3-030-75031-2_2.
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AbstractThe “natural rate of interest” is the hypothetical, risk-free real rate of interest that would obtain in a closed economy, if net public debt were zero. It is considerably less than the optimal steady-state rate of interest, which is equal to the system’s growth rate. This holds for a very general “meta-model.” The fundamental equation of capital theory holds on the optimal steady-state path: T = Z − D, where T is the overall economic period of production, Z is the representative private “waiting period” of consumers and D is the public debt ratio. Prosperity is at least 30% lower at the natural rate of interest than at the optimal rate.
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McCulloch, J. Huston. "The Taylor Rule, the Zero Lower Bound, and the Term Structure of Interest Rates." In Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons. Emerald Group Publishing Limited, 2015. http://dx.doi.org/10.1108/s1571-038620150000024023.
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Evans, George W., and Seppo Honkapohja. "Learning as a Rational Foundation for Macroeconomics and Finance." In Rethinking Expectations. Princeton University Press, 2013. http://dx.doi.org/10.23943/princeton/9780691155234.003.0003.
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This chapter examines the central ideas about learning and bounded rationality for macroeconomics and finance. It first introduces the main methodological issues concerning expectation formation and learning before discussing the circumstances in which rational expectations may arise. It then reviews empirical work that applies learning to macroeconomic issues and asset prices, along with the implications of the use of structural knowledge in learning and the form of the agents' decision rules. As an application, the scope of Ricardian Equivalence is considered. The chapter also presents three applications of the learning approach to monetary policy: the appropriate specification of interest rate rules; implementation of price-level targeting to achieve learning stability of the optimal rational expectations equilibrium; and whether under learning, commitment to price-level targeting can be sufficient to rule out the deflation trap of a zero interest rate lower bound and return the economy to the intended rational expectations steady state.
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Rostagno, Massimo, Carlo Altavilla, Giacomo Carboni, et al. "The Second Regime." In Monetary Policy in Times of Crisis. Oxford University Press, 2021. http://dx.doi.org/10.1093/oso/9780192895912.003.0006.
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That the euro area economy had switched over into the second regime described in Chapter 3 became more evident in the last phase of the crisis. In this chapter, we describe the landscape facing the ECB in 2013 and 2014, with disinflationary demand shocks replacing inflationary cost-push shocks as the dominant force in the economy. With conventional policy unavailable, we outline the series of unconventional policies launched by the European Central Bank (ECB) to avert a multi-year depression and the deflation scenario that would have accompanied it. We chart the evolution from a policy of ‘separation’ to one of ‘combination’, with different policies seen as mutually reinforcing in fighting deflation risks. We illuminate how the ECB responded to key obstacles such as breaking through the zero lower bound (ZLB) on interest rates and implementing liquidity policies in a deleveraging banking sector.
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Shirakawa, Masaaki. "What Should We Expect of the Central Bank?" In Tumultuous Times. Yale University Press, 2021. http://dx.doi.org/10.12987/yale/9780300258974.003.0021.
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This chapter assesses what should be expected of the central bank. Central banks have been faced with many challenges in the past, such as intermittent financial crises, high inflation, or severe stagflation, but it can be said that they have eventually overcome — or at least appeared to overcome — these difficulties reasonably well. Indeed, the years prior to the global financial crisis of 2007–2009 were the heyday of the central bank. Today, central banks are again faced with enormous global challenges. What people expect from central banks has changed, and there are significant differences of opinion in this regard. Some view monetary policy as ineffective in the face of the zero lower bound of interest rates. Others view monetary policy as still effective by devising various unconventional tools. Some pin their hopes on technocratic institutions like the central bank to play an even bigger role than in the past in stabilizing the economy. Others are increasingly questioning the legitimacy of unelected officials at the central bank to play such a big role in the economy of democratic societies.
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Adachi, Hideyuki, and Tamotsu Nakamura. "A Dynamic Analysis of an Economy with a Zero Interest Rate Bound." In Studies in Medium-Run Macroeconomics. WORLD SCIENTIFIC, 2015. http://dx.doi.org/10.1142/9789814619585_0006.
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Chen, Qianying, Andrew Filardo, Dong He, and Feng Zhu. "Domestic and Cross-border Impact of US Monetary Policy at the Zero Lower Bound." In Macroeconomic Shocks and Unconventional Monetary Policy. Oxford University Press, 2019. http://dx.doi.org/10.1093/oso/9780198838104.003.0008.
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This is a chapter of the domestic impact as well as cross-border spillovers of US monetary policy at the zero lower bound (ZLB) to advanced and emerging economies. We estimate the empirical relevance of the various channels of international policy transmission with a global vector error correction macroeconometric model. To address the challenge of measuring the stance of monetary policy at the ZLB, we proxy it with a shadow federal funds rate, which captures the impact of central bank balance sheet policies. We find evidence that US monetary policy was effective in stimulating the US economy. For many of the other economies, the spillovers from the quantitative easing had sizeable and persistent impacts on output growth, inflation, and equity returns. The responses in the emerging economies were rather diverse. In terms of exchange rates, a number of emerging economy currencies faced strong appreciation pressures (e.g. Malaysian ringgit and Korean won).
Conference papers on the topic "Zero interest rate lower bound"
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Oleš, Tomáš. "The Impact of Monetary Policy Instruments on the Euro Area Labor Market in the Context of COVID-19 Pandemic – Time-Varying Parameter VAR Model Approach." In EDAMBA 2021 : 24th International Scientific Conference for Doctoral Students and Post-Doctoral Scholars. University of Economics in Bratislava, 2022. http://dx.doi.org/10.53465/edamba.2021.9788022549301.359-368.
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The paper examines simplified backward and forward transmission mechanism of monetary policy instrument to perturbation in un-employment rate. We apply three variables time-varying VAR model, with stochastic volatility, to determine the dynamic relationship among unemployment rate, interest rate and supply of money in the context of Euro Area. We concluded that, there is a possible stabilization potential through the increase in the money supply has dramatically risen before (and after) the COVID-19 pandemic; the reaction function of ECB to negative unemployment shock has been tied-up by the zero low bound and space for intense interest rate decrease has been empirically reduced in the pandemic times.
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Healey, Peter, and David W. Smith. "Broadband bidirectional parallel electrooptic space switch." In OSA Annual Meeting. Optica Publishing Group, 1987. http://dx.doi.org/10.1364/oam.1987.thv5.
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The classical optical matrix-vector multiplier, or crossbar, offers a number of obvious advantages over its electronic counterpart when the data transmission rate is very high. However, there are two principal limiting factors in its design, namely, insertion loss and crosstalk. Insertion loss is unavoidable and sets a loss-limited upper bound to the switch dimensions due to the finite optical power budget. More important, the low-contrast ratio of present-day spatial light modulators (SLMs) and wiring crosstalk caused by aberrations in the imaging optics also sets a limit to switch dimensions. Fortunately, this crosstalk limit is dominant in the lower transmission rate systems which are of less interest. This paper examines the relative magnitudes of the loss and crosstalk limit and their effect on switch dimensions and how the switch performance can be improved by tailoring the input and output optical field shapes. It is also shown how the crossbar can be made bidirectional without loss or crosstalk penalty. A bulk-optic 32 × 32 bidirectional crossbar with a transmission rate of 140 Mbit/s is proposed which uses multimode optical fiber inputs and outputs and a twisted-nematic liquid crystal SLM cross-point matrix.
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Vlaicu, Dan. "Non-Cyclic Methods for Shakedown Analysis of Cracked Structures." In ASME 2012 Pressure Vessels and Piping Conference. American Society of Mechanical Engineers, 2012. http://dx.doi.org/10.1115/pvp2012-78567.
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Fatigue calculation of nuclear components under cyclic loading in the inelastic domain is a complex task involving nonlinear material models capable of predicting the strain-stress relationship beyond the yield limit. In this context, the ratcheting boundary that is the cyclic plastic strain accumulation under primary and secondary cyclic loads is a key criterion for structural design. A cyclically loaded structure made of elastic-plastic material is considered elastic shakedown if plastic straining occurs in the first few cycles and the sequent response is wholly elastic. In this paper the finite element calculations of a straight pipe with a notch is used to develop upper and lower bounds limits for the elastic shakedown of structures under periodic loading conditions. Linear methods using elastic compensation approach and the residual stress method derived from Melan’s theorem are used to generate the lower bound limit for the shakedown load while the upper bound is found through a method derived from Koiter’s theorem. Furthermore, the global classical theorems are complemented by local shakedown calculations within the regions near the cracks in terms of stress intensity factors that are evaluated from fracture mechanics theory. The presence of the stress singularity in a cracked structure is breaking down the classical shakedown theory and the conventional shakedown limit for a cracked structure should be zero due to the singularity within the stress field. In this methodology it is considered that the plastic deformation is confined to a relatively limited region around the root of a stationary crack and the energy released rate is associated with the change in the elastic stress field outside of the plastic flow region. Furthermore, probabilistic methods are employed for presenting the response surface plots of the shakedown limit in terms of the maximum accumulated strain and fatigue life against the strain hardening and yield limit.
Reports on the topic "Zero interest rate lower bound"
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McCallum, Bennett. Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates. National Bureau of Economic Research, 2000. http://dx.doi.org/10.3386/w7677.
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Buiter, Willem. Negative Nominal Interest Rates: Three ways to overcome the zero lower bound. National Bureau of Economic Research, 2009. http://dx.doi.org/10.3386/w15118.
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Wright, Jonathan. What does Monetary Policy do to Long-Term Interest Rates at the Zero Lower Bound? National Bureau of Economic Research, 2011. http://dx.doi.org/10.3386/w17154.
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Swanson, Eric, and John Williams. Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates. National Bureau of Economic Research, 2014. http://dx.doi.org/10.3386/w20486.
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Gourinchas, Pierre-Olivier, and Hélène Rey. Real Interest Rates, Imbalances and the Curse of Regional Safe Asset Providers at the Zero Lower Bound. National Bureau of Economic Research, 2016. http://dx.doi.org/10.3386/w22618.
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Amador, Manuel, Javier Bianchi, Luigi Bocola, and Fabrizio Perri. Exchange Rate Policies at the Zero Lower Bound. National Bureau of Economic Research, 2017. http://dx.doi.org/10.3386/w23266.
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Chinn, Menzie, and Yi Zhang. Uncovered Interest Parity and Monetary Policy Near and Far from the Zero Lower Bound. National Bureau of Economic Research, 2015. http://dx.doi.org/10.3386/w21159.
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