Low Real Interest Rates and the Zero Lower Bound

Stephen Williamson

No 2017-10, Working Papers from Federal Reserve Bank of St. Louis

Abstract: How do low real interest rates constrain monetary policy? Is the zero lower bound optimal if the real interest rate is sufficiently low? What is the role of forward guidance? A model is constructed that can in- corporate sticky price frictions, collateral constraints, and conventional monetary distortions. The model has neo-Fisherian properties. Forward guidance in a liquidity trap works through the promise of higher future inflation, generated by a higher future nominal interest rate. With very tight collateral constraints, the real interest rate can be very low, but the zero lower bound need not be optimal.

JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-04-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Journal Article: Low real interest rates and the zero lower bound (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2017-010

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DOI: 10.20955/wp.2017.010

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