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

Download full text files

Export metadata

Additional Services

Share in Twitter Search Google Scholar
Metadaten
Author:Günter Coenen, Volker WielandORCiDGND
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):License LogoDeutsches Urheberrecht