Inflation and output in New Keynesian models with a transient interest rate peg

Charles T. Carlstrom, Timothy Fuerst and Matthias Paustian

Journal of Monetary Economics, 2015, vol. 76, issue C, 230-243

Abstract: A familiar result in the canonical Dynamic New Keynesian (DNK) model is that policymakers constrained by the zero bound can improve outcomes by promising to keep rates low after the zero bound is not binding. We examine a general class of interest rate pegs in a variety of DNK models. Standard versions of the model produce counterintuitive reversals where the effect of the interest rate peg can switch from highly expansionary to highly contractionary for modest changes in the length of the interest rate peg. This unusual behavior does not arise in sticky information models of the Phillips curve.

Keywords: Fixed interest rate; Dynamic New Keynesian model; Forward guidance puzzles (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (181)

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Related works:
Working Paper: Inflation and output in New Keynesian models with a transient interest rate peg (2012)
Working Paper: Inflation and output in New Keynesian models with a transient interest rate peg (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:76:y:2015:i:c:p:230-243

DOI: 10.1016/j.jmoneco.2015.09.004

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