scholarly journals The Art of Central Banks' Forward Guidance at the Zero Lower Bound

2015 ◽  
Author(s):  
Hamza Bennani
Keyword(s):  
Lower Bound ◽  
Central Banks ◽  
Zero Lower Bound ◽  
Forward Guidance

scholarly journals Resolving New Keynesian Anomalies with Wealth in the Utility Function

2019 ◽  
pp. 1-46 ◽  
Author(s):  
Pascal Michaillat ◽  
Emmanuel Saez
Keyword(s):  
Lower Bound ◽  
Utility Function ◽  
Social Status ◽  
Government Spending ◽  
Marginal Utility ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Forward Guidance ◽  
Keynesian Model ◽  
Low Levels

At the zero lower bound, the New Keynesian model predicts that output and inflation collapse to implausibly low levels, and that government spending and forward guidance have implausibly large effects. To resolve these anomalies, we introduce wealth into the utility function; the justification is that wealth is a marker of social status, and people value status. Since people partly save to accrue social status, the Euler equation is modified. As a result, when the marginal utility of wealth is sufficiently large, the dynamical system representing the zero-lower-bound equilibrium transforms from a saddle to a source—which resolves all the anomalies.

scholarly journals Exchange rate movements in the presence of the zero lower bound

2017 ◽  
Vol 12 (1) ◽  
pp. 82-87
Author(s):  
Jens Klose
Keyword(s):  
Exchange Rate ◽  
Lower Bound ◽  
Exchange Rates ◽  
Interest Rates ◽  
Balance Sheet ◽  
Central Banks ◽  
Zero Lower Bound ◽  
Monetary Policies ◽  
Base Exchange ◽  
Monetary Base

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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