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Articles de revues sur le sujet « Zero interest rate lower bound »

Auteur : Grafiati

Publié le 10 mars 2023

Mis à jour le 31 juillet 2025

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1

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 ex

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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 r

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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 fram

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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 tha

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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 CI

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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 i

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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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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

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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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Illing, Gerhard. "The Limits of a Negative Interest Rate Policy (NIRP)." Credit and Capital Markets – Kredit und Kapital: Volume 51, Issue 4 51, no. 4 (2018): 561–85. http://dx.doi.org/10.3790/ccm.51.4.561.

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Abstract The paper analyzes the experience with unconventional measures to cope with the Zero Lower Bound. It argues that forward guidance and quantitative easing are the natural extension of optimal monetary policy within the New Keynesian Framework, facing a Lower Bound. Unconventional policy had significant effects on financial variables and contributed to stabilizing the real economy. Negative rates have been successful in pushing the effective lower bound below zero. But given the risk of damaging side effects on financial stability and on central bank independence, these policy tools are

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11

Ercolani, Valerio, and João Valle e Azevedo. "HOW CAN THE GOVERNMENT SPENDING MULTIPLIER BE SMALL AT THE ZERO LOWER BOUND?" Macroeconomic Dynamics 23, no. 8 (2018): 3457–82. http://dx.doi.org/10.1017/s1365100517001079.

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Some recent empirical evidence questions the typically large size of government spending multipliers when the nominal interest rate is stuck at zero, finding output multipliers of around 1 or even lower, with an upper bound of around 1.5 in some circumstances. In this paper, we use a recent estimate of the degree of substitutability between private and government consumption in an otherwise standard New Keynesian model to show that this channel significantly reduces the size of government spending multipliers obtained when the nominal interest rate is at zero. All else being equal, the relatio

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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 an

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Jun, Jae-Yun, and Yves Rakotondratsimba. "Approximate Closed-Form Solutions for Pricing Zero-Coupon Bonds in the Zero Lower Bound Framework." Mathematics 12, no. 17 (2024): 2690. http://dx.doi.org/10.3390/math12172690.

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After the 2007 financial crisis, many central banks adopted policies to lower their interest rates; the dynamics of these rates cannot be captured using classical models. Recently, Meucci and Loregian proposed an approach to estimate nonnegative interest rates using the inverse-call transformation. Despite the fact that their work is distinguished from others in the literature by their consideration of practical aspects, some technical difficulties still remain, such as the lack of analytic expression for the zero-coupon bond (ZCB) price. In this work, we propose novel approximate closed-form

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14

Singh, Gurbachan. "Overcoming Zero Lower Bound on Interest Rate without any Inflation or Inflationary Expectations." South Asian Journal of Macroeconomics and Public Finance 3, no. 1 (2014): 1–38. http://dx.doi.org/10.1177/2277978714525308.

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15

Hännikäinen, Jari. "Zero lower bound, unconventional monetary policy and indicator properties of interest rate spreads." Review of Financial Economics 26 (September 2015): 47–54. http://dx.doi.org/10.1016/j.rfe.2015.03.002.

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Alstadheim, Ragna. "The zero lower bound on the interest rate and a Neoclassical Phillips curve." Journal of Macroeconomics 47 (March 2016): 116–30. http://dx.doi.org/10.1016/j.jmacro.2015.10.009.

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17

Rösl, Seitz, and Tödter. "The Cost of Overcoming the Zero Lower-Bound: A Welfare Analysis." Economies 7, no. 3 (2019): 67. http://dx.doi.org/10.3390/economies7030067.

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To broaden the operational scope of monetary policy, several authors suggest cash abolition as an appropriate means of breaking through the zero lower-bound. We argue that the welfare costs of bypassing the zero lower-bound by getting rid of cash entirely are analytically equivalent to negative interest rates on cash holdings. Using a money-in-the-utility-function model, we measure in two ways the welfare loss consumers as money holders would be forced to bear once the zero lower-bound is broken: in terms of the amount needed to compensate consumers (compensated variation), and as excess burde

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18

Flotho, Stefanie. "FISCAL MULTIPLIERS IN A MONETARY UNION UNDER THE ZERO–LOWER–BOUND CONSTRAINT." Macroeconomic Dynamics 19, no. 6 (2014): 1171–94. http://dx.doi.org/10.1017/s1365100513000783.

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This paper analyzes government spending multipliers in a two-country model of a monetary union with price stickiness and home bias in consumption where monetary policy is constrained by the zero lower bound (ZLB) on the nominal interest rate. Government spending multipliers under this constraint are computed and compared with fiscal multipliers in normal times, that is, where the central bank sets the nominal interest rate via a Taylor rule. The trade elasticity and the parameter measuring home bias in consumption play an important role in determining the size of the multiplier. The multiplier

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19

Barsky, Robert, Alejandro Justiniano, and Leonardo Melosi. "The Natural Rate of Interest and Its Usefulness for Monetary Policy." American Economic Review 104, no. 5 (2014): 37–43. http://dx.doi.org/10.1257/aer.104.5.37.

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We estimate a state-of-the-art DSGE model to study the natural rate of interest in the United States over the last 20 years. The natural rate is highly procyclical, and fell substantially below zero in each of the last three recessions. Although the drop was of comparable magnitude across the three recessions, the decline was considerably more persistent in the Great Recession. We discuss the usefulness and limitations, particularly due to the zero lower bound, of the natural rate for the conduct of monetary policy.

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20

Maclachlan, Fiona. "Negative interest rates: a Keynesian perspective." Review of Keynesian Economics 7, no. 2 (2019): 171–84. http://dx.doi.org/10.4337/roke.2019.02.04.

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One of the most surprising recent developments in financial markets has been the emergence of negative yields on long-term debt. This development contradicts the notion of the zero lower bound which, until recently, was taken as a given in monetary policy discussions. In this paper, I look at the phenomenon of negative yields through the lens of Keynes's liquidity-preference theory of interest. I review changes to the financial market environment that have led to a shift in the liquidity of government bonds relative to bank deposits, and with this empirical context in place, I argue Keynes's t

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21

Chen, W. D. "Liquidity, covered interest rate parity, and zero lower bound in Japan’s foreign exchange markets." International Review of Economics & Finance 69 (September 2020): 334–49. http://dx.doi.org/10.1016/j.iref.2020.05.007.

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22

Woodford, Michael, and Yinxi Xie. "Policy Options at the Zero Lower Bound When Foresight is Limited." AEA Papers and Proceedings 109 (May 1, 2019): 433–37. http://dx.doi.org/10.1257/pandp.20191084.

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We reconsider several monetary and fiscal policies that have been proposed as tools of stabilization policy when conventional interest-rate policy is constrained by the zero lower bound on interest rates, assuming that households and firms are capable of explicit forward planning over only a limited horizon. The predicted effects of all of the policies are somewhat different than under rational expectations, but credible announcements about future policy can still influence behavior, and there is, if anything, an even stronger case for pursuing systematic policies outside crisis periods in ord

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23

Hloušek, Miroslav. "The Empirical Implications of the Zero Lower Bound on the Interest Rate: The Case of the Czech Economy." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 64, no. 2 (2016): 603–16. http://dx.doi.org/10.11118/actaun201664020603.

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This paper uses an estimated DSGE model of the Czech economy to study the macroeconomic implications of various shocks when the interest rate is constrained by the zero lower bound. The goal is to identify which shocks represent threats for the economy and how large the distortions are. The results show that four single shocks can take the economy to the zero lower bound, and that of the four, productivity shock in the tradable sector is the most dangerous. The consequences for the behaviour of macroeconomic variables are nontrivial and, quite naturally, increase with the size of the shock and

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24

Lu, You-Xun. "The stabilizing effect of the zero lower bound: A perspective of interest rate target zones." Quarterly Review of Economics and Finance 84 (May 2022): 61–67. http://dx.doi.org/10.1016/j.qref.2022.01.014.

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25

Iwata, Shigeru, and Shu Wu. "A NOTE ON FOREIGN EXCHANGE INTERVENTIONS AT ZERO INTEREST RATES." Macroeconomic Dynamics 16, no. 5 (2012): 802–17. http://dx.doi.org/10.1017/s1365100512000120.

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This note uses a nonlinear structural vector autoregression model to empirically investigate the effectiveness of official foreign exchange (FX) interventions in an economy when interest rates are constrained to the zero level, based on Japanese data in the 1990s. The model allows us to estimate the effects of FX interventions operating through different channels. We find that FX interventions are still capable of influencing the foreign exchange rate in a zero-interest-rate environment, even though their effects are greatly reduced by the zero lower bound on interest rates. Our results sugges

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26

Epstein, D., and P. Wilmott. "A New Model for Interest Rates." International Journal of Theoretical and Applied Finance 01, no. 02 (1998): 195–226. http://dx.doi.org/10.1142/s0219024998000114.

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There are many theories and models underlying the valuation of fixed income security portfolios. This work addresses the problem from a new perspective: the objective is to find a lower bound for the value of a portfolio of cash flows. We set up conditions for the evolution of a short-term interest rate and value a liability using its present value. We formulate a first-order nonlinear hyperbolic partial differential equation for the value, V, of the portfolio. We explore the solution of this equation and then hedge our portfolio with market-traded zero-coupon bonds of known value. We include

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Miyamoto, Wataru, Thuy Lan Nguyen, and Dmitriy Sergeyev. "Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan." American Economic Journal: Macroeconomics 10, no. 3 (2018): 247–77. http://dx.doi.org/10.1257/mac.20170131.

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Using a rich dataset on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period and 0.6 outside of it. We estimate that government spending shocks increase both private consumption and investment during the ZLB period, but crowd them out in the normal period. There is evidence that expected inflation increases more in the ZLB period than in the normal period. (JEL E21, E22, E23, E31, E43, E52, E62)

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Swanson, Eric T., and John C. Williams. "Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates." American Economic Review 104, no. 10 (2014): 3154–85. http://dx.doi.org/10.1257/aer.104.10.3154.

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According to standard macroeconomic models, the zero lower bound greatly reduces the effectiveness of monetary policy and increases the efficacy of fiscal policy. However, private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current short-term rate. Put differently, longer-term yields matter. We show how to measure the zero bound's effects on yields of any maturity. Indeed, 1- and 2-year Treasury yields were surprisingly unconstrained throughout 2008 to 2010, suggesting that monetary and fiscal policy were about as effective as usual dur

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Oda, Nobuyuki, and Takashi Nagahata. "On the function of the zero interest rate commitment: Monetary policy rules in the presence of the zero lower bound on interest rates." Journal of the Japanese and International Economies 22, no. 1 (2008): 34–67. http://dx.doi.org/10.1016/j.jjie.2007.03.002.

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Belke, Ansgar, and Matthias Göcke. "Interest Rates and Macroeconomic Investment under Uncertainty." Credit and Capital Markets – Kredit und Kapital: Volume 54, Issue 3 54, no. 3 (2021): 319–45. http://dx.doi.org/10.3790/ccm.54.3.319.

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The interest rate is generally considered as an important driver of macroeconomic investment characterised by a particular form of path dependency, “hysteresis”. At the same time, the interest rate channel is a central ingredient of monetary policy transmission. In this context, we shed light on the issue (which currently is a matter of concern for many central banks) whether uncertainty over future interest rates at the zero lower bound hampers monetary policy transmission. As an innovation we derive the exact shape of the “hysteretic” impact of rate changes on macroeconomic investment under

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Claus, Edda, Iris Claus, and Leo Krippner. "Monetary Policy Spillovers across the Pacific when Interest Rates Are at the Zero Lower Bound." Asian Economic Papers 15, no. 3 (2016): 1–27. http://dx.doi.org/10.1162/asep_a_00448.

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To conduct monetary policy effectively, central banks need to understand the transmission of monetary policy into financial markets. In this paper we investigate the effects of Japanese and U.S. monetary policy shocks on their own asset markets, and the spillovers into each other's markets. Because short-term nominal interest rates have been effectively zero in Japan since January 1998 and in the United States from late 2008, however, monetary policy shocks cannot be quantified by considering observable changes in short-term market interest rates. Therefore, in our analysis we use a shadow sho

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Rogoff, Kenneth. "Dealing with Monetary Paralysis at the Zero Bound." Journal of Economic Perspectives 31, no. 3 (2017): 47–66. http://dx.doi.org/10.1257/jep.31.3.47.

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Recently, the key constraint for central banks is the zero lower bound on nominal interest rates. Central banks fear that if they push short-term policy interest rates too deeply negative, there will be a massive flight into paper currency. This paper asks whether, in a world where paper currency is becoming increasingly vestigial outside small transactions (at least in the legal, tax compliant economy), there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live. Surprisingly, this question gets little attention compared to the massive numbe

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Buthelezi, Eugene Msizi. "Is Money Supply Endogenous a Markov-Switch Exploration in the Zero Lower Bound Interest Rate in the USA." Review of Economics 75, no. 3 (2024): 193–213. https://doi.org/10.1515/roe-2024-0026.

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Abstract This paper employs a Markov switch dynamic regression model to analyze money supply dynamics and interest rates in the U.S. from 2000 to 2023. The analysis identifies two distinct monetary regimes. In State 1, with lower interest rates, deficiencies in M2 variables challenge prevailing notions of endogeneity, suggesting exogeneity. State 2, reflecting higher interest rates, affirms the Federal Reserve’s exogenous control over the money supply. The inverse relationship between the money supply growth rate and interest rates supports the pivotal role of the Federal Reserve. Identifying

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Gogichaev, Chermen A. "FEATURES OF MONEY MARKET INTEREST RATE MANAGEMENT BY THE BANK OF ENGLAND." Scientific Review. Series 1. Economics and Law, no. 5-6 (2022): 34–40. http://dx.doi.org/10.26653/2076-4650-2022-5-6-03.

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After world financial crisis of 2008 central banks of developed countries started to implement unconventional monetary policy because of the zero lower bound problem. Such policy actions have led to expansion of balance sheets of these central banks arising from unprecedented growth of excess reserves’ supply. This article covers the issue of controlling short-term money market interest rates by Bank of England in case of sustainable liquidity surplus. It is underlined that paying interest on excess and required reserves contributes to reduction of distortions in commercial banks’ operation ac

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Acharya, Sushant, and Keshav Dogra. "The Side Effects of Safe Asset Creation." Journal of the European Economic Association 20, no. 2 (2021): 581–625. http://dx.doi.org/10.1093/jeea/jvab029.

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Abstract We present an incomplete markets model to understand the costs and benefits of increasing government debt when an increased demand for safety pushes the natural rate of interest below zero. A higher demand for safe assets causes the zero lower bound (ZLB) to bind, increasing unemployment. Higher government debt satiates the demand for safe assets, raising the natural rate, and restoring full employment. However, this entails permanently lower investment, which reduces welfare, since our economy is dynamically efficient even when the natural rate is negative. Despite this, increasing d

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Palley, Thomas I. "The fallacy of the natural rate of interest and zero lower bound economics: why negative interest rates may not remedy Keynesian unemployment." Review of Keynesian Economics 7, no. 2 (2019): 151–70. http://dx.doi.org/10.4337/roke.2019.02.03.

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This paper provides a critique of zero lower bound (ZLB) economics which has become the new orthodoxy for explaining stagnation. ZLB economics is an extension of pre-Keynesian economics which attributes macroeconomic dysfunction to rigidities and market imperfections. The ZLB is the latest rigidity in that pre-Keynesian tradition. The paper argues negative nominal interest rates, even if feasible, may be unable to remedy Keynesian demand shortage unemployment, and might even aggravate the problem. That is because there exist non-reproduced assets whose return dominates that of investment, and

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Nie, Yutian, and Vadim Linetsky. "Sticky reflecting Ornstein-Uhlenbeck diffusions and the Vasicek interest rate model with the sticky zero lower bound." Stochastic Models 36, no. 1 (2019): 1–19. http://dx.doi.org/10.1080/15326349.2019.1630287.

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Cao, Dan, Wenlan Luo, and Guangyu Nie. "Uncovering the Effects of the Zero Lower Bound with an Endogenous Financial Wedge." American Economic Journal: Macroeconomics 15, no. 1 (2023): 135–72. http://dx.doi.org/10.1257/mac.20200495.

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We study the effects of the zero lower bound (ZLB) on the severity of financial crises using an incomplete markets New Keynesian model with two occasionally binding constraints: a ZLB on the nominal interest rate and a borrowing constraint tied to an asset price. The model’s financial wedge corresponds to an endogenous multiplier on the borrowing constraint. Binding ZLB exacerbates financial crises through its interaction with the asset fire sale vicious cycle, driving up the financial wedge. Our results offer a novel reinterpretation of the negligible effect of the ZLB in representative agent

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Miao, Jianjun, and Dongling Su. "Fiscal and Monetary Policy Interactions in a Model with Low Interest Rates." American Economic Journal: Macroeconomics 16, no. 4 (2024): 35–76. http://dx.doi.org/10.1257/mac.20220232.

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We provide a new Keynesian model where entrepreneurs face uninsurable idiosyncratic investment risk and credit constraints. Government bonds provide liquidity services. Multiple steady states with positive values of public debt can be supported for a given permanent deficit-to-output ratio. The steady-state interest rates are lower than the economic growth rate, and public debt contains a bubble component. We analyze the determinacy regions of policy parameter space and find that a large set of monetary and fiscal policy parameters can achieve debt and inflation stability given persistent fisc

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Christensen, Jens H. E., and Glenn D. Rudebusch. "A New Normal for Interest Rates? Evidence from Inflation-Indexed Debt." Review of Economics and Statistics 101, no. 5 (2019): 933–49. http://dx.doi.org/10.1162/rest_a_00821.

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The downtrend in U.S. interest rates over the past two decades may partly reflect a decline in the longer-run equilibrium real rate of interest. We examine this issue using dynamic term structure models that account for time-varying term and liquidity risk premiums and are estimated directly from prices of individual inflation-indexed bonds. Our finance-based approach avoids two potential pitfalls of previous macroeconomic analyses: structural breaks at the zero lower bound and misspecification of output and inflation dynamics. We estimate that the longer-run equilibrium real rate has fallen a

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Ngo, Phuong V. "Optimal discretionary monetary policy in a micro-founded model with a zero lower bound on nominal interest rate." Journal of Economic Dynamics and Control 45 (August 2014): 44–65. http://dx.doi.org/10.1016/j.jedc.2014.05.010.

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Ngo, Phuong V. "THE RISK OF HITTING THE ZERO LOWER BOUND AND THE OPTIMAL INFLATION TARGET." Macroeconomic Dynamics 22, no. 2 (2017): 402–25. http://dx.doi.org/10.1017/s1365100516000262.

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I examine the optimal inflation target in a dynamic stochastic New Keynesian model featuring an occasionally binding zero lower bound on nominal interest rate (ZLB). To this end, I first calibrate the shock needed to generate the risk of hitting the ZLB that matches the U.S. data, based on a fully nonlinear method. I then resolve the model with different inflation targets and find that the optimal target is 3.4%. In addition, the optimal inflation target is a nonlinear function of the risk of hitting the ZLB and inflation indexation. It is always greater than 2% if the risk is greater than 2.5

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Belke, Ansgar, and Christian Dreger. "Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area." Jahrbücher für Nationalökonomie und Statistik 239, no. 5-6 (2019): 841–60. http://dx.doi.org/10.1515/jbnst-2018-0098.

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Abstract The paper examines the bank lending activities of banks in a low interest rate environment. External financing of small- and medium-sized enterprises in the euro area primarily takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In

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Korinek, Anton, and Alp Simsek. "Liquidity Trap and Excessive Leverage." American Economic Review 106, no. 3 (2016): 699–738. http://dx.doi.org/10.1257/aer.20140289.

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We investigate the role of macroprudential policies in mitigating liquidity traps. When constrained households engage in deleveraging, the interest rate needs to fall to induce unconstrained households to pick up the decline in aggregate demand. If the fall in the interest rate is limited by the zero lower bound, aggregate demand is insufficient and the economy enters a liquidity trap. In this environment, households' ex ante leverage and insurance decisions are associated with aggregate demand externalities. Welfare can be improved with macroprudential policies targeted toward reducing levera

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Xavier, Inês. "Bubbles and Stagnation." Finance and Economics Discussion Series 2022, no. 033 (2022): 1–32. http://dx.doi.org/10.17016/feds.2022.033.

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This paper studies the consequences of asset bubbles for economies that are vulnerable to persistent stagnation. Stagnation is the result of a shortage of assets that creates an oversupply of savings and puts downward pressure on the level of interest rates. Once the zero lower bound on the nominal interest rate binds, the real rate cannot fully adjust downward, forcing output to fall instead. In such context, bubbles are useful as they expand the supply of assets, absorb excess savings and raise the natural interest rate - the real rate that is compatible with full employment - crowding in co

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Diaz-Roldan, Carmen, María A. Prats, and Maria del Carmen Ramos-Herrera. "Redefining monetary policy rules: A threshold approach." PLOS ONE 16, no. 5 (2021): e0252316. http://dx.doi.org/10.1371/journal.pone.0252316.

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In this paper, we try to analyse the extent to which a redefinition of the monetary policy rule would help to avoid the zero-lower bound, as well as to explore the conditions needed to avoid that constraint. To that aim, we estimate the threshold values of the key variables of the policy rule: the inflation gap and the output gap. The threshold model allows us to know which are the turning points from which the relationship between the key variables and the interest rate revert. In the Eurozone countries, we have found that the inflation gap always contributes to increasing the nominal interes

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Schmitt-Grohé, Stephanie, and Martín Uribe. "Liquidity Traps and Jobless Recoveries." American Economic Journal: Macroeconomics 9, no. 1 (2017): 165–204. http://dx.doi.org/10.1257/mac.20150220.

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This paper proposes a model that explains the joint occurrence of liquidity traps and jobless growth recoveries. Its key elements are downward nominal wage rigidity, a Taylor-type interest rate feedback rule, the zero lower bound on nominal interest rates, and a confidence shock. Absent a change in policy, the model predicts that low inflation and high unemployment become chronic. With capital accumulation, the model predicts, in addition, an investment slump. The paper identifies a New Fisherian effect, whereby raising the nominal interest rate to its intended target for an extended period of

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Farmer, Leland E. "The discretization filter: A simple way to estimate nonlinear state space models." Quantitative Economics 12, no. 1 (2021): 41–76. http://dx.doi.org/10.3982/qe1353.

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Existing methods for estimating nonlinear dynamic models are either highly computationally costly or rely on local approximations which often fail adequately to capture the nonlinear features of interest. I develop a new method, the discretization filter, for approximating the likelihood of nonlinear, non‐Gaussian state space models. I establish that the associated maximum likelihood estimator is strongly consistent, asymptotically normal, and asymptotically efficient. Through simulations, I show that the discretization filter is orders of magnitude faster than alternative nonlinear techniques

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Farmer, Leland E. "The discretization filter: A simple way to estimate nonlinear state space models." Quantitative Economics 12, no. 1 (2021): 41–76. http://dx.doi.org/10.3982/qe1353.

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Existing methods for estimating nonlinear dynamic models are either highly computationally costly or rely on local approximations which often fail adequately to capture the nonlinear features of interest. I develop a new method, the discretization filter, for approximating the likelihood of nonlinear, non‐Gaussian state space models. I establish that the associated maximum likelihood estimator is strongly consistent, asymptotically normal, and asymptotically efficient. Through simulations, I show that the discretization filter is orders of magnitude faster than alternative nonlinear techniques

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Sinelnikova-Muryleva, Elena, and Alina Grebenkina. "Discussion on Inflation Target Optimality." Moscow University Economics Bulletin 2020, no. 3 (2020): 3–24. http://dx.doi.org/10.38050/01300105202031.

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The article focuses on the existing gap between theoretically optimal (often close to zero) and empirically observed (targeted by central banks, explicitly positive) rate of inflation. In order to reduce this gap, the article proposes some theoretical explanations of a positive rate of optimal inflation, the main cause of which are labor market frictions, financial market frictions and risk of achieving zero lower bound of nominal interest rates in the economy (also known as ZLB problem). Using a case-study approach, the article shows that ZLB factor contributes to a significant increase of op

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