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 ze
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
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Metadaten
Author:Günter Coenen, Volker Wieland
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:Univ.-Bibliothek Frankfurt am Main
Release Date:2005/06/13
Tag:exchange rates; liquidity trap; monetary policy rules; nominal rigidities; rational expectations; zero-interest-rate bound
SWD-Keyword:Deflation; Geldpolitik; Nominalzins; Rezession; Zerobond
HeBIS PPN:223972169
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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