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Theoretical analysis regarding a zero lower bound on nominal interest rates

Bennett McCallum

Conference Series ; [Proceedings], 2000, 870-935

Abstract: This paper explores several issues concerning a possible zero lower bound (ZLB) including its theoretical rationale; the magnitude of effects of low sustained inflation on real interest rates; the validity of analyzing monetary policy in models with no monetary variables; and the dynamic stabilizing properties of Taylor rules in a ZLB context. The most important argument, however, is that if the short nominal rate is immobilized at zero, there nevertheless exists a route for monetary stabilization policy to be effective--via the foreign exchange market. Its quantitative importance is examined in a calibrated, optimizing, open-economy model.

Keywords: Monetary policy; Inflation (Finance); Interest rates; Foreign exchange market (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (201)

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