scholarly journals Negative Nominal Interest Rates: Three ways to overcome the zero lower bound

2009 ◽  
Author(s):  
Willem Buiter
Keyword(s):  
Lower Bound ◽  
Interest Rates ◽  
Zero Lower Bound ◽  
Nominal Interest Rates

A NOTE ON NOMINAL GDP TARGETING AND THE ZERO LOWER BOUND

2016 ◽  
Vol 21 (8) ◽  
pp. 2138-2157 ◽  
Author(s):  
Roberto M. Billi
Keyword(s):  
Lower Bound ◽  
Central Bank ◽  
Interest Rates ◽  
Price Level ◽  
Supply And Demand ◽  
New Keynesian ◽  
Zero Lower Bound ◽  
Supply And Demand Shocks ◽  
Keynesian Model ◽  
Nominal Interest Rates

I compare nominal gross domestic product (GDP) level targeting with strict price level targeting in a small New Keynesian model, with the central bank operating under optimal discretion and facing a zero lower bound on nominal interest rates. I show that, if the economy is only buffeted by purely temporary shocks to inflation, nominal GDP level targeting may be preferable because it requires the burden of the shocks to be shared by prices and output. However, in the presence of persistent supply and demand shocks, strict price level targeting may be superior because it induces greater policy inertia and improves the tradeoffs faced by the central bank. During lower bound episodes, somewhat paradoxically, nominal GDP level targeting leads to larger falls in nominal GDP.

scholarly journals Oil, Equities, and the Zero Lower Bound

2021 ◽  
Vol 13 (2) ◽  
pp. 214-253
Author(s):  
Deepa D. Datta ◽  
Benjamin K. Johannsen ◽  
Hannah Kwon ◽  
Robert J. Vigfusson
Keyword(s):  
Lower Bound ◽  
Interest Rates ◽  
Empirical Evidence ◽  
Equity Returns ◽  
Economic Environment ◽  
Zero Lower Bound ◽  
Macroeconomic News ◽  
Nominal Interest Rates ◽  
Theoretical Predictions

From late 2008 to 2014, oil and equity returns were more positively correlated than in other periods. In addition, we show that both oil and equity returns became more responsive to macroeconomic news. We provide empirical evidence that these changes resulted from the zero lower bound (ZLB) on nominal interest rates, consistent with the theoretical predictions of a model that includes the ZLB. Although the ZLB alters the economic environment in theory, supportive empirical evidence has been lacking. Our paper provides clear evidence of the ZLB altering the economic environment. (JEL E12, E32, E43, G12, G14, Q43)

READING KEYNES AT THE ZERO LOWER BOUND: THE GREAT DEPRESSION, THE LIQUIDITY TRAP, AND UNCONVENTIONAL POLICY

2018 ◽  
Vol 40 (3) ◽  
pp. 301-334 ◽  
Author(s):  
Richard Sutch
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Great Depression ◽  
Zero Lower Bound ◽  
Liquidity Trap ◽  
The Great Depression ◽  
Nominal Interest Rates

John Maynard Keynes’s analysis of the Great Depression has strong parallels to recent theorizing about the post-2008 Great Recession. There are also remarkable similarities between the two historical episodes: the collapse of demand for new fixed investment, the role of the zero lower bound liquidity trap in hampering conventional monetary policy, the multi-year period of near-zero short-term rates, and the protracted period of subnormal prosperity. A major difference between then and now is that monetary authorities in the recent situation actively pursued an unconventional policy with massive purchases of long-term securities. Keynes couldn’t convince authorities of his era to pursue such a plan, but it was precisely the monetary policy he advocated for a depressed economy stuck at the zero lower bound of nominal interest rates.

scholarly journals The fallacy of the natural rate of interest and zero lower bound economics: why negative interest rates may not remedy Keynesian unemployment

2019 ◽  
Vol 7 (2) ◽  
pp. 151-170 ◽  
Author(s):  
Thomas I. Palley
Keyword(s):  
Lower Bound ◽  
Interest Rates ◽  
Market Imperfections ◽  
Zero Lower Bound ◽  
Natural Rate ◽  
Keynesian Economics ◽  
Negative Interest Rates ◽  
Nominal Interest Rates ◽  
Natural Rate Of Interest ◽  
Keynesian Unemployment

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 saving may also increase in response to negative rates. Consequently, there may be no natural rate of interest.

scholarly journals Monetary Policy, Financial Stability, and the Zero Lower Bound

2016 ◽  
Vol 106 (5) ◽  
pp. 39-42 ◽  
Author(s):  
Stanley Fischer
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Financial Stability ◽  
Central Banking ◽  
Zero Lower Bound ◽  
Short Term ◽  
Long Run ◽  
Nominal Interest Rates ◽  
Equilibrium Real Interest Rate

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.

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