Exchange-rate policy and the zero bound on nominal interest
- In this paper, we study the effectiveness of monetary policy in a severe recession and deflation when nominal interest rates are bounded at zero. We compare two alternative proposals for ameliorating the effect of the zero bound: an exchange-rate peg and price-level targeting. We conduct this quantitative comparison in an empirical macroeconometric model of Japan, the United States and the euro area. Furthermore, we use a stylized micro-founded two-country model to check our qualitative findings. We find that both proposals succeed in generating inflationary expectations and work almost equally well under full credibility of monetary policy. However, price-level targeting may be less effective under imperfect credibility, because the announced price-level target path is not directly observable. Klassifikation: E31, E52, E58, E61
Author: | Günter Coenen, Volker WielandORCiDGND |
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URN: | urn:nbn:de:hebis:30-10651 |
Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,14 |
Series (Serial Number): | CFS working paper series (2004, 14) |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2004 |
Year of first Publication: | 2004 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2005/06/13 |
Tag: | exchange rates; liquidity trap; monetary policy rules; nominal rigidities; rational expectations; zero-interest-rate bound |
GND Keyword: | Geldpolitik; Zerobond; Nominalzins; Rezession; Deflation |
HeBIS-PPN: | 223972169 |
Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Licence (German): | Deutsches Urheberrecht |