Taylor-Rule Exit Policies for the Zero Lower Bound

Siddhartha Chattopadhyay and Betty Daniel

International Journal of Central Banking, 2018, vol. 14, issue 5, 1-53

Abstract: The monetary authority loses the ability to implement the Taylor rule at the zero lower bound. However, the promise to implement a Taylor rule upon exit remains an effective policy instrument.We show that a Taylor rule, with an optimally chosen exit date and time-varying inflation target, delivers fully optimal policy at the zero lower bound. Additionally, a Taylor rule with only an optimally chosen exit date but a zero inflation target delivers almost all the welfare gains of optimal policy and is simpler to communicate.

JEL-codes: E5 E52 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Taylor-Rule Exit Policies for the Zero Lower Bound (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2018:q:4:a:1

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