TY  - UNPD
A1  - Coenen, Günter
A1  - Montes-Galdón, Carlos
A1  - Schmidt, Sebastian
T1  - Macroeconomic stabilisation and monetary policy effectiveness in a low-interest-rate environment
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 656
N2  - The secular decline in the equilibrium real interest rate observed over the past decades has materially limited the room for policy-rate reductions in recessions, and has led to a marked increase in the incidence of episodes where policy rates are likely to be at, or near, the effective lower bound on nominal interest rates. Using the ECB's New Area-Wide Model, we show that, if unaddressed, the effective lower bound can cause substantial costs in terms of worsened macroeconomic performance, as rejected in negative biases in inflation and economic activity, as well as heightened macroeconomic volatility. These costs can be mitigated by the use of nonstandard instruments, notably the joint use of interest-rate forward guidance and large-scale asset purchases. When considering alternatives to inflation targeting, we find that make-up strategies such as price-level targeting and average-inflation targeting can, if they are well-understood by the private sector, largely undo the negative biases and heightened volatility induced by the effective lower bound.
T3  - CFS working paper series - 656 
KW  - effective lower bound
KW  - monetary policy
KW  - asset purchases
KW  - forward guidance
KW  - make-up strategies
Y1  - 2021
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/57581
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-575813
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -