Credit risk and the zero lower bound on interest rates

Fiorella De Fiore and Oreste Tristani

Research Bulletin, 2012, vol. 15, 12-14

Abstract: This article studies the implications of the zero lower bound on interest rates as a constraint on monetary policy when frictions impair the functioning of financial markets. Compared to a situation without financial market imperfections, the zero lower bound may be hit more frequently when policy follows a simple interest rate rule. Following a deflationary shock, optimal policy entails that prices revert to a higher level than prior to the shock. JEL Classification: E44, E52, E61

Keywords: optimal monetary policy; zero-lower bound (search for similar items in EconPapers)
Date: 2012-02
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbrbu:2012:0015:3

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