Latest documents http://publikationen.ub.uni-frankfurt.de/index/index/ Mon, 13 Jun 2005 09:35:33 +0200 Mon, 13 Jun 2005 09:35:33 +0200 http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4426 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 Günter Coenen; Volker Wieland workingpaper http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4426 Mon, 13 Jun 2005 09:35:33 +0200