Monetary Policy Strategies for a Low-Rate Environment

Ben Bernanke, Michael Kiley and John Roberts

No 2019-009, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In low-rate environments, policy strategies that involve holding rates ?lower for longer? (L4L) may mitigate the effects of the effective lower bound (ELB). However, these strategies work in part by managing the public?s expectations, which is not always realistic. Using the Fed?s large-scale macroeconometric model, we study the effectiveness of L4L policies when financial market participants are forward-looking but other agents are not. We find that the resulting limited ability to manage expectations reduces but does not eliminate the advantages of L4L policies. The best policies provide adequate stimulus at the ELB while avoiding sizable overshoots of inflation and output.

Keywords: interest rates; Model comparison; Monetary policy (search for similar items in EconPapers)
JEL-codes: E13 E52 E58 E61 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2019-02-13
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Journal Article: Monetary Policy Strategies for a Low-Rate Environment (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2019-09

DOI: 10.17016/FEDS.2019.009

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