The Stochastic Lower Bound

Riccardo M. Masolo and Pablo E. Winant

Economics Letters, 2019, vol. 180, issue C, 54-57

Abstract: Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard Zero Lower Bound (ZLB) model to study the effects of a Stochastic Lower Bound (SLB) on policy rates. We find that a less predictable SLB reduces the deflationary effects of negative demand shocks by lowering expectations of future values of the SLB at times when interest-rate cuts are not an option.

Keywords: ZLB; Inflation; DSGE (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The stochastic lower bound (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:180:y:2019:i:c:p:54-57

DOI: 10.1016/j.econlet.2019.03.026

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