In Search of an Appropriate Lower Bound. The Zero Lower Bound vs. the Positive Lower Bound under Discretion and Commitment

Piotr Ciżkowicz (), Andrzej Rzońca and Andrzej Torój

German Economic Review, 2019, vol. 20, issue 4, e1028-e1053

Abstract: Using a standard New Keynesian model, we show that moderate side effects of zero lower bound (ZLB) policy suffice for positive lower bound (PLB) policy to pay off in terms of welfare, especially when central banks fail to commit. For given side effects of the ZLB, as the shock that makes the ZLB bind becomes larger and more persistent, the dominance of PLB policy over ZLB policy becomes more likely. The findings hold for flexible and rigid economies with both fast and slow potential output growth and low and high inflation targets.

Keywords: zero lower bound; positive lower bound; restructuring; uncertainty; discretion; commitment (search for similar items in EconPapers)
Date: 2019
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Journal Article: In Search of an Appropriate Lower Bound. The Zero Lower Bound vs. the Positive Lower Bound under Discretion and Commitment (2019)
Working Paper: In search for appropriate lower bound.Zero lower bound vs. positive lower bound under discretion and commitment (2015)
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DOI: 10.1111/geer.12203

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