Redefining monetary policy rules: A threshold approach

Carmen Diaz-Roldan, Maria Prats and Maria del Carmen Ramos-Herrera
Authors registered in the RePEc Author Service: Maria del Carmen Ramos Herrera ()

PLOS ONE, 2021, vol. 16, issue 5, 1-13

Abstract: In this paper, we try to analyse the extent to which a redefinition of the monetary policy rule would help to avoid the zero-lower bound, as well as to explore the conditions needed to avoid that constraint. To that aim, we estimate the threshold values of the key variables of the policy rule: the inflation gap and the output gap. The threshold model allows us to know which are the turning points from which the relationship between the key variables and the interest rate revert. In the Eurozone countries, we have found that the inflation gap always contributes to increasing the nominal interest rate. On the contrary, the output gap works differently when it reaches values above or below the threshold value, which would favour the reduction of the interest rates towards the zero level.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0252316

DOI: 10.1371/journal.pone.0252316

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