Animal spirits, risk premia and monetary policy at the zero lower bound

Christian Proaño and Benjamin Lojak

Journal of Economic Behavior & Organization, 2020, vol. 171, issue C, 221-233

Abstract: In this paper we investigate the risk-related effects of monetary policy in normal times, as well as in periods where the zero lower bound (ZLB) binds, in a stylized macroeconomic model with boundedly rational beliefs. In our model, financial market participants use heuristics to assess the risk premium over the policy rate in accordance to an “implicit Taylor rule” that measures the stance of conventional monetary policy and which serves as an informative instrument during times when the funds rate is constrained by the ZLB. In such a case, conventional monetary policy is exhausted so that the central bank is forced to use unconventional types of policy. We propose alternative monetary policy measures to help the economy out of the liquidity trap which take into account this assumed form of bounded rationality.

Keywords: Behavioral macroeconomics; Monetary policy; Zero lower bound; Bounded rationality (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268120300160
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Animal spirits, risk premia and monetary policy at the zero lower bound (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:171:y:2020:i:c:p:221-233

DOI: 10.1016/j.jebo.2020.01.016

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().