Conducting monetary policy when interest rates are near zero

Charles Carlstrom and Andrea Pescatori ()

Economic Commentary, 2009, issue Oct

Abstract: This Economic Commentary explains the concerns that are associated with the combination of deflation, low economic activity, and zero nominal interest rates and describes how monetary policy might be conducted in such a situation. We argue that avoiding expectations of deflation is key and that the monetary authority needs to demonstrate an unequivocal commitment to preventing deflation. We also argue that price-level targeting might be a good device for communicating such a commitment.

Keywords: Interest rates; Monetary policy (search for similar items in EconPapers)
Date: 2009
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