TY  - UNPD
A1  - Adam, Klaus
A1  - Billi, Roberto
T1  - Discretionary monetary policy and the zero lower bound on nominal interest rates
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2005,16
N2  - Ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in New Keynesian models. A stochastic forward-looking model with lower bound, calibrated to the U.S. economy, suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy. The fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound. The welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the Phillips curve. These results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment. JEL Klassifikation: E31, E52
T3  - CFS working paper series - 2005, 16 
KW  - Nonlinear Optimal Policy
KW  - Occasionally Binding Constraint
KW  - Sequential Policy
KW  - Markov Perfect Equilibrium
KW  - Liquidity Trap
KW  - Markov-Modell
KW  - Gleichgewicht
KW  - Liquiditätspräferenztheorie
Y1  - 2005
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4401
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30-10925
N1  - First Version: October 3, 2003. Current Version: March 14, 2005.
IS  - Current Version: March 14, 2005
ER  -