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Robust Monetary Policy Under Uncertainty About the Lower Bound

Tillmann Peter ()
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Tillmann Peter: Department of Economics, Justus-Liebig-University Gießen, University of Giessen, Gießen, Germany

The B.E. Journal of Macroeconomics, 2021, vol. 21, issue 1, 309-321

Abstract: Central banks face uncertainty about the true location of the effective lower bound (ELB) on nominal interest rates. We model optimal discretionary monetary policy during a liquidity trap when the central bank designs policy that is robust with respect to the location of the ELB. If the central bank fears the worst-case location of the ELB, monetary conditions will be more expansionary in the period before the liquidity trap.

Keywords: discretion; liquidity trap; optimal monetary policy; robust control; uncertainty (search for similar items in EconPapers)
JEL-codes: E31 E32 E58 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/bejm-2019-0077

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