Economics at your fingertips  

Is the Taylor principle still valid when rates are low?

Stephen D. Morris

Journal of Macroeconomics, 2020, vol. 64, issue C

Abstract: The Taylor principle states that the policy rate must respond more than one-for-one with inflation, or else inflation may become untethered. I show that nonlinear dynamics near, but above the interest rate lower bound, imply a modified principle of two-for-one. Thus, to avoid low-inflation equilibria in a low interest rate environment, policymakers must respond to disinflation twice as forcefully as they would otherwise.

Keywords: Monetary policy; Effective lower bound; Determinacy; Taylor principle (search for similar items in EconPapers)
JEL-codes: E47 E52 E58 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
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:

DOI: 10.1016/j.jmacro.2020.103192

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2021-07-10
Handle: RePEc:eee:jmacro:v:64:y:2020:i:c:s0164070419304690